Cisco 2002 Annual Report Download - page 31

Notes to Consolidated Financial Statements
Cisco Systems, Inc. 2002 Annual Report 29
1. Description of Business
Cisco Systems, Inc. (the “Company” or “Cisco”) manufactures and sells networking and communications products and provides
services associated with that equipment and its use. Its products are installed at corporations, public institutions, and telecommunication
companies, and are also found in small and medium-sized commercial enterprises. Cisco provides a broad line of products for
transporting data, voice, and video within buildings, across campuses, or around the world.
2. Summary of Significant Accounting Policies
Fiscal Year The Company’s fiscal year is the 52 or 53 weeks ending on the last Saturday in July. Fiscal 2002, 2001, and 2000 were
52-week fiscal years.
Principles of Consolidation The Consolidated Financial Statements include the accounts of Cisco Systems, Inc. and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original or remaining maturity
of less than three months at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with several
financial institutions.
Investments The Company’s investments are primarily comprised of U.S. government notes and bonds; corporate notes and bonds;
and publicly traded corporate equity securities. Investments with original or remaining maturities of greater than three months and
less than one year are considered to be short-term. Investments are custodied with a major financial institution. The specific
identification method is used to determine the cost basis of notes and bonds disposed of. The weighted-average method is used
to determine the cost basis of corporate equity securities disposed of. At July 27, 2002 and July 28, 2001, substantially all of the
Company’s investments were classified as available for sale. These investments are recorded on the Consolidated Balance Sheets
at fair value. Unrealized gains and losses on these investments are included as a separate component of accumulated other
comprehensive income (loss), net of any related tax effect. The Company recognizes an impairment charge when the decline in the
fair value of its investments below the cost basis is judged to be other-than-temporary.
The Company also has minority investments in privately held companies. These investments are included in other assets on the
Company’s Consolidated Balance Sheets and are generally carried at cost. The Company monitors these investments for impairment
and makes appropriate reductions in carrying values.
Inventories Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual
cost, on a first-in, first-out basis. The Company provides inventory allowances based on excess and obsolete inventories determined
primarily by future demand forecasts.
Restricted Investments Restricted investments consisted of U.S. government notes and bonds with maturities of more than one year.
These investments were carried at fair value and were restricted as collateral for specified obligations under certain lease agreements. In
fiscal 2002, the Company elected to purchase all of the land and buildings, as well as sites under construction, under these lease agreements.
As a result, all restricted investments were liquidated and the Company no longer has any sites under such lease agreements.
Fair Value of Financial Instruments Fair value of certain of the Company’s financial instruments, including cash and cash equivalents,
accrued compensation, and other accrued liabilities, approximate cost because of their short maturities. The fair value of investments
is determined using quoted market prices for those securities or similar financial instruments.
Concentrations Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed
the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand.
The Company performs ongoing credit evaluations of its customers and, with the exception of certain financing transactions, does
not require collateral from its customers. The Company’s customers are primarily in the service provider and enterprise markets.
The Company receives certain of its components from sole suppliers. Additionally, the Company relies on a limited number
of contract manufacturers and suppliers to provide manufacturing services for its products. The inability of any contract
manufacturer or supplier to fulfill supply requirements of the Company could materially impact future operating results.
Revenue Recognition The Company generally recognizes product revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the fee is fixed or determinable, and collectibility is probable. In instances where final acceptance of the product,
system, or solution is specified by the customer, revenue is deferred until all acceptance criteria have been met. Service revenue is
generally deferred and, in most cases, recognized ratably over the service period obligations, which are typically one to three
years. Cash payments received in advance of product or service revenue are recorded as deferred revenue.