Cisco 2002 Annual Report Download - page 21

Cisco Systems, Inc. 2002 Annual Report 19
The development of these technologies remains a significant risk due to the remaining efforts to achieve technical viability,
rapidly changing customer markets, uncertain standards for new products, and significant competitive threats from numerous
companies. The nature of the efforts to develop these technologies into commercially viable products consists principally of planning,
designing, experimenting, and testing activities necessary to determine that the technologies can meet market expectations, including
functionality and technical requirements. Failure to bring these products to market in a timely manner could result in a loss of
market share or a lost opportunity to capitalize on emerging markets, and could have a material adverse impact on our business
and operating results.
The following table summarizes the key assumptions underlying the valuations for our significant purchase acquisitions
completed in fiscal 2002 and 2001 (in millions, except percentages):
Estimated Cost to Risk-Adjusted
Complete Technology at Discount Rate for
Acquired Company Time of Acquisition In-Process R&D
FISCAL 2002
Allegro Systems, Inc. $ 5 52.5%
AuroraNetics, Inc. $ 2 35.0%
Hammerhead Networks, Inc. $ 2 23.0%
Navarro Networks, Inc. $ 1 23.0%
FISCAL 2001
IPmobile, Inc. $15 42.5%
NuSpeed, Inc. $ 6 40.0%
IPCell Technologies, Inc. $10 30.0%
PixStream Incorporated $ 2 35.0%
Active Voice Corporation $ 5 40.0%
Radiata, Inc. $ 3 30.0%
The assumptions primarily consist of an expected completion date for the in-process projects, estimated costs to complete the
projects, revenue and expense projections assuming the products have entered the market, and discount rates based on the risks
associated with the development life cycle of the in-process technology acquired. Failure to achieve the expected levels of revenue
and net income from these products will negatively impact the return on investment expected at the time that the acquisitions were
completed and may result in impairment charges. Actual results from the acquired companies to date did not have a material
adverse impact on our business and operating results except for certain purchase acquisitions where the purchased intangible
assets were impaired and written down as reflected in the Consolidated Statements of Operations.
Interest and Other Income (Loss), Net
Interest and other income (loss), net, is summarized in the following table (in millions):
Years Ended July 27, 2002 July 28, 2001
Interest income $ 895 $ 967
Other income (loss), net (1,104) 163
Total $ (209) $1,130
Interest income was $895 million in fiscal 2002, compared with $967 million in fiscal 2001. The decrease in interest income was
primarily due to lower average interest rates.
Other income (loss) primarily consists of net realized gains (losses) and impairment charges on investments, as well as provision
for losses on investments in privately held companies. Other income (loss) was ($1.1) billion in fiscal 2002, compared with
$163 million in fiscal 2001. The net loss in fiscal 2002 included a charge of $858 million recorded in the first quarter related to the
impairment of certain publicly traded equity securities in our investment portfolio. This impairment charge was due to the decline
in the fair value of our publicly traded equity investments below the cost basis that was judged to be other-than-temporary.