Cisco 2006 Annual Report Download - page 49

52 Cisco Systems, Inc.
The fair value of Scientic-Atlanta stock options assumed was determined using a lattice-binomial model. The use of the lattice-binomial
model and method of determining the variables is consistent with the Company’s valuation of stock options in accordance with SFAS 123(R).
See Note 10 to the Consolidated Financial Statements. Under the purchase method of accounting, the total purchase price as shown in the
table above is allocated to the tangible and identiable intangible assets acquired and liabilities assumed based on their estimated fair
values. The purchase price was allocated using the information currently available. As a result, the Company may continue to adjust the
preliminary purchase price allocation after obtaining more information regarding, among other things, asset valuations, liabilities assumed,
and revisions of preliminary estimates. The purchase price allocation will be nalized in scal 2007.
The Company allocated the purchase price to tangible assets, liabilities assumed, and identiable intangible assets acquired, as well
as in-process research and development, based on their estimated fair values. The excess of the purchase price over the aggregate fair
values was recorded as goodwill. The fair value assigned to identiable intangible assets acquired is determined using the income approach,
which discounts expected future cash ows to present value using estimates and assumptions determined by management. The acquired
goodwill was assigned to each of the reportable segments. Purchased intangibles are amortized on a straight-line basis over their respective
useful lives. The total preliminary allocation of the purchase price as of July 29, 2006 is as follows (in millions):
Amount
Cash and cash equivalents $ 1,747
Investments 137
Accounts receivable 195
Inventories 191
Property and equipment, net 254
Goodwill 3,762
Purchased intangible assets 1,949
Other current and noncurrent assets 106
Accounts payable (187)
Deferred revenue (32)
Other liabilities (478)
Deferred tax liabilities, net (645)
In-process research and development 88
Total $ 7,087
None of the goodwill recorded as part of the Scientic-Atlanta acquisition will be deductible for U.S. federal income tax purposes.
Amortization of goodwill will be deductible for state income tax purposes in those states in which the Company elected to step up its
basis in the acquired assets.
Intangible assets consist primarily of customer relationships, technology and other intangibles. The intangible assets attributable to
customer relationships relate to Scientic-Atlanta’s ability to sell existing, in-process, and future versions of its products to its existing
customers. Technology intangibles include a combination of patented and unpatented technology, trade secrets, and computer software
that represent the foundation for current and planned new products. The following table presents details of the purchased intangible assets
acquired as part of the acquisition of Scientic-Atlanta (in millions, except years):
Weighted-
Average
Useful Life
(in Years) Amount
Customer relationships 7.0 $ 1,346
Technology 3.5 546
Other 2.0 57
Total $ 1,949
Notes to Consolidated Financial Statements