Remaining performance obligations: disclosure examples

Commercial remaining performance obligation	Commercial portion of revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods
Microsoft Cloud revenue and revenue growth	Revenue from Microsoft 365 Commercial cloud, Azure and other cloud services, the commercial portion of LinkedIn, and Dynamics 365
Microsoft Cloud gross margin percentage	Gross margin percentage for our Microsoft Cloud business

Productivity and Business Processes and Intelligent Cloud

Metrics related to our Productivity and Business Processes and Intelligent Cloud segments assess the health of our core businesses within these segments. The metrics primarily reflect growth across our cloud services.

Microsoft 365 Commercial cloud revenue growth	Revenue from Microsoft 365 Commercial subscriptions, comprising Microsoft 365 Commercial, Enterprise Mobility + Security, the cloud portion of Windows Commercial, the per-user portion of Power BI, Exchange, SharePoint, Microsoft Teams, Microsoft 365 Security and Compliance, and Microsoft 365 Copilot
Microsoft 365 Commercial seat growth	The number of Microsoft 365 Commercial seats at end of period where seats are paid users covered by a Microsoft 365 Commercial subscription
Microsoft 365 Consumer cloud revenue growth	Revenue from Microsoft 365 Consumer subscriptions and other consumer services
LinkedIn revenue growth	Revenue from LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions
Dynamics 365 revenue growth	Revenue from Dynamics 365, including a set of intelligent, cloud-based applications across ERP, CRM, Power Apps, and Power Automate
Azure and other cloud services revenue growth	Revenue from Azure and other cloud services, including cloud and AI consumption-based services, GitHub cloud services, Health and Life Sciences cloud services (formerly Nuance Healthcare cloud services), virtual desktop offerings, and other cloud services

PART II

Item 7

More Personal Computing

Metrics related to our More Personal Computing segment assess the performance of our key consumer businesses.

As of September 3, 2026, the transaction price allocated to our remaining performance obligations was approximately $ 134 billion, of which $ 13 billion has been recognized as contract liabilities. Contract liabilities primarily consisted of customer deposits associated with strategic customer agreements. Nearly all of the deposits are scheduled to be repaid between 2029 and 2031. Approximately one-fourth of the remaining performance obligations as of September 3, 2026 are expected to be recognized as revenue over the next twelve months . The remaining performance obligations are expected to be fully recognized within the next five years. As of August 28, 2025, our remaining performance obligations were not material.

Our remaining performance obligations are based on expected purchases to satisfy committed volumes and minimum pricing and are not expected to be indicative of future revenue under these contracts. We have excluded agreements from our remaining performance obligations that do not have either fixed pricing or price bands as the related consideration is variable at contract inception. As a practical expedient, we have excluded contracts that have an original term of one year or less from remaining performance obligations.

Certain strategic customer agreements also include terms requiring our customers to maintain letters of credit with third-party financial institutions. Our right to access letters of credit is contingent upon the occurrence of specified events of default or breach by our customers. Letters of credit are not recognized as revenue unless an event of default or breach has occurred. The aggregate amount of letters of credit issued, or contractually committed to be issued, by third-party financial institutions was $ 7 billion as of September 3, 2026, which represented the maximum potential proceeds available to us in the event of customer default or breach. In the event of customer default or breach, our contractual recovery rights may include proceeds from letters of credit, rights to decrement customer deposits and other contractual remedies.

As of September 3, 2026 and August 28, 2025, other current liabilities included $ 4.32 billion and $ 1.19 billion, respectively, for estimates of consideration payable to customers, including pricing adjustments and returns.

Note 17. Other Operating (Income) Expense, Net

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.

If our accounting estimates and judgments turn out to be inaccurate, our future financial results could fall short of expectations, which could have a material adverse effect on our stock price. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make certain estimates, judgments and assumptions that can affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our estimates, judgments and assumptions on information available to us at the time that they are made, as discussed in “Critical Accounting Estimates” under Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations and in “Significant Accounting Policies” discussed in Note 1 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report. For example, we make certain judgments related to revenue recognition and remaining performance obligations. While we believe these judgments and assumptions are reasonable under the circumstances, they are subject to uncertainties and actual results may differ.

Risks Related to Our Common and Preferred Stock

Our stock price could become more volatile and your investment could lose value. All of the factors discussed within this Risk Factors section have affected and could in the future affect our stock price. The timing of announcements in the public market by us or by our competitors regarding new cloud services, AI advancements, products, product enhancements, technological advances, data center capacity, acquisitions, joint ventures and strategic alliances or major transactions could also affect our stock price. Changes in the amounts and frequency of stock repurchases or dividends could affect our stock price. Our stock price could also be affected by factors, some

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.

Remaining performance obligations represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year which are fully or partially unsatisfied at the end of the period. Remaining performance obligations include noncancelable purchase orders, the non-lease portion of minimum purchase commitments under long-term consumable supply arrangements, extended warranty and service and other long-term contracts. These remaining performance obligations do not include revenue from contracts with customers with an original term of one year or less, revenue from long-term consumable supply arrangements with no minimum purchase requirements or revenue expected from purchases made in excess of the minimum purchase requirements or revenue from equipment leased to customers. While the remaining performance obligation disclosure is similar in concept to backlog, the definition of remaining performance obligations excludes leases and contracts that provide the customer with the right to cancel or terminate for convenience with no substantial penalty, even if historical experience indicates the likelihood of cancellation or termination is remote. Additionally, the Company has elected to exclude contracts with customers with an original term of one year or less from remaining performance obligations while these contracts are included within backlog.

As of December 31, 2025, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 5.2 billion. The Company expects to recognize revenue on approximately 47 % of the remaining performance obligations over the next 12 months, 26 % over the subsequent 12 months, and the remainder recognized thereafter.

Contract Balances

The majority of our contracts are terminable by the client on short notice with little or no termination penalties, and some without notice. Only the non-cancelable portion of these contracts is included in our remaining performance obligations disclosed in Note 2 (Revenues) to our Consolidated Financial Statements under Item 8, “Financial Statements and

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ACCENTURE 2026 FORM 10-K	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	33

Supplementary Data.” Accordingly, a significant portion of what we consider contract bookings is not included in our remaining performance obligations.

Critical Accounting Policies and Estimates

The preparation of our Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses. We continually evaluate our estimates, judgments and assumptions based on available information and experience. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates. Certain of our accounting policies require higher degrees of judgment than others in their application. These include certain aspects of accounting for revenue recognition and income taxes.

Revenue Recognition

Determining the method and amount of revenue to recognize requires us to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions may require contract interpretation to determine the appropriate accounting, including whether promised goods and services specified in an arrangement are distinct performance obligations and should be accounted for separately. Other judgments include determining whether performance obligations are satisfied over time or at a point in time and the selection of the method to measure progress towards completion.

We measure progress towards completion for technology integration consulting services and some non-technology consulting services using costs incurred to date relative to total estimated costs at completion. Revenues, including estimated fees, are recorded proportionally as costs are incurred. The amount of revenue recognized for these contracts in a period is dependent on our ability to estimate total contract costs. We continually evaluate our estimates of total contract costs based on available information and experience.

• our expectations regarding our revenue, expenses, and other operating results, including statements relating to the portion of our remaining performance obligations that we expect to recognize as revenue in future periods;

• our ability to acquire new customers and successfully retain existing customers;

• our ability to maintain and increase consumption on our platform;

• our ability to continue to innovate and make new features generally available to customers, including our development and use of artificial intelligence (AI) and machine learning technology (collectively, AI Technology), and our customers’ adoption and use of such features;

• our ability to achieve or sustain our profitability;

• future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;

• the costs and success of our sales and marketing efforts, and our ability to promote our brand;

• our growth strategies for, and market acceptance of, our platform and the AI Data Cloud, including emerging product areas, as well as our ability to execute such strategies;

• our ability to successfully integrate and realize the benefits of strategic acquisitions;

• our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;

• our ability to effectively manage our growth, including any international expansion;

• our ability to protect our intellectual property rights and any costs associated therewith;

• our ability to prevent or mitigate disruptions, outages, defects, and other performance and quality problems with our platform or with the public cloud and internet infrastructure on which it relies;

• our expectations regarding general market conditions and the effects of those conditions, including on customer and partner activity;

• our ability to compete effectively with existing competitors and new market entrants;

• the growth rates of the markets in which we compete;

• our expectations regarding our strategic investments, including the impact of changes in market conditions;

• our expectations regarding our convertible senior notes, including the expected use of proceeds we received and our ability to meet the requirements of the notes;

• our expectations regarding our stock repurchase program;

• our expectations regarding stock-based compensation; and

• the impacts of volatility and uncertainty in the global economy on our business and the businesses of our customers and partners.

• estimates and assumptions in determining our financial results, remaining performance obligations and backlog, including the timing and significance of impairments of long-lived assets, equity or other investments, receivables, goodwill or other intangible assets;

• significant fluctuations in foreign currency rates;

• the recognition of tax impacts related to changes in tax laws or uncertain tax positions; and

• the timing and magnitude of costs we incur to support our operations or growth internally or through acquisitions.

A variety of issues could affect the timing or profitability of our projects, which may result in additional costs to us, reductions or delays in revenues, the payment of liquidated damages or project termination.

Our business is dependent in part upon projects that can be cyclical in nature and are subject to risks of delay or cancellation. The timing of or failure to obtain contracts, delays in awards of, start dates for or completion of projects and the cancellations of projects can result in significant periodic fluctuations in our business, financial condition, results of operations and cash flows. Many of our projects involve complex design, engineering, financing, permitting, right of way acquisition, procurement and construction phases that occur over extended time periods, sometimes several years, and we have encountered and may in the future encounter project delays, additional costs or project performance issues as a result of, among other things:

• inability to meet project schedule requirements or achieve guaranteed performance or quality standards for a project, which can result in increased costs, through rework, replacement or otherwise, or the payment of liquidated damages to the customer or contract termination;

• failure to accurately estimate project costs or accurately establish the scope of our services;

• failure to make judgments in accordance with applicable professional standards (e.g., engineering standards);

• unforeseen circumstances or project modifications not included in our cost estimates or covered by our contract for which we cannot obtain adequate compensation, including concealed or unknown environmental, geological or geographical site conditions or technical problems such as design or engineering issues;

• changes in laws or permitting and regulatory requirements during the course of our work;

• delays in the delivery or management of design or engineering information, equipment or materials;

Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations include deferred revenue, multi-year contracts with future installment payments and certain unfulfilled orders against accepted customer contracts at the end of any given period.

Convertible Senior Notes

On December 12, 2024, the Company issued $ 1.0 billion aggregate principal amount of the “2029 Notes”.

The 2029 Notes are classified as non-current liabilities until the reporting period date is within one year of maturity of the 2029 Notes or when the Company has received a redemption request, but settlement will occur after the reporting period date.

Cost of Revenue

Cost of revenue consists primarily of costs related to providing subscription services to paying customers, including data center and networking expenses, employee compensation (including stock-based compensation) and other employee-related expenses for customer experience and technical operations staff, payments to outside service providers, payment processing fees, amortization of capitalized internally developed software costs and acquired developed technology, and allocated overhead costs.

Research and Development Costs

Research and development costs are expensed as incurred, with the exception of certain software development costs which are eligible for capitalization. Research and development costs consist of employee compensation (including stock-based compensation) and other employee-related expenses, materials and supplies, and allocated overhead costs such as rent and facilities costs.

Sales and Marketing Costs

Sales and marketing costs consist primarily of personnel costs for the Company’s sales and marketing organization, including stock-based compensation and commissions, costs of general marketing and promotional activities, including the free tier and introductory trials of the Company’s products, travel-related expenses, amortization of acquired customer relationships, and allocated overhead costs.

Advertising Costs

Advertising costs are expensed as incurred and were approximately $ 36.7 million, $ 30.0 million and $ 21.8 million for the years ended December 31, 2025, 2024 and 2023, respectively, and are included in sales and marketing expense in the accompanying consolidated statement of operations.

Income Taxes

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. Transaction price allocated to remaining performance obligations is influenced by several factors, including the timing of renewals and average contract term. We applied practical expedients to exclude amounts related to performance obligations that are billed and recognized as they are delivered, optional purchases that do not represent material rights, sales and usage-based royalties not yet consumed and any estimated amounts of variable consideration that are subject to constraint.

Remaining performance obligations were approximately $ 22.52 billion as of November 28, 2025. Non-cancellable and non-refundable committed funds related to some of our enterprise customer agreements referred to in the paragraph above comprised approximately 4 % of the total remaining performance obligations. Approximately 65 % of the remaining performance obligations, excluding the aforementioned enterprise customer agreements, are expected to be recognized over the next 12 months with the remainder recognized thereafter.

Contract Acquisition Costs

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized.

The costs capitalized are primarily sales commissions paid to our sales force personnel. Capitalized costs may also include portions of fringe benefits and payroll taxes associated with compensation for incremental costs to acquire customer contracts and incentive payments to partners.

Capitalized costs to obtain a contract are amortized over the expected period of benefit, which we have determined, based on analysis, to be 5 years. Amortization of capitalized costs are included in sales and marketing expense in our Consolidated Statements of Income. During fiscal 2025, 2024 and 2023, we amortized $ 282 million, $ 272 million and $ 254 million of capitalized contract acquisition costs into sales and marketing expense, respectively. We did not incur any impairment losses for all periods presented.