Cisco 2009 Annual Report Download - page 26

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Research and Development (R&D), Sales and Marketing, and General and Administrative (G&A) Expenses
R&D, sales and marketing, and G&A expenses are summarized in the following table (in millions, except percentages):
Years Ended July 25, 2009 July 26, 2008
Variance
in Dollars
Variance
in Percent July 26, 2008 July 28, 2007
Variance
in Dollars
Variance
in Percent
Research and development $ 5,208 $ 5,325 $(117) (2.2)% $ 5,325 $ 4,598 $ 727 15.8%
Percentage of net sales 14.4% 13.5% 13.5% 13.2%
Sales and marketing 8,403 8,690 (287) (3.3)% 8,690 7,401 1,289 17.4%
Percentage of net sales 23.3% 22.0% 22.0% 21.2%
General and administrative 1,565 1,387 178 12.8% 1,387 1,151 236 20.5%
Percentage of net sales 4.3% 3.5% 3.5% 3.3%
Total $15,176 $15,402 $(226) (1.5)% $15,402 $13,150 $2,252 17.1%
Percentage of net sales 42.0% 39.0% 39.0% 37.7%
During fiscal 2009, we realigned our resources to reduce expenses in response to the macroeconomic environment while maintaining the
focus on our priorities. Our combined expenses for R&D, sales and marketing, and G&A decreased in fiscal 2009 compared with fiscal 2008
primarily due to the following: (i) a decrease in discretionary expenses such as travel, meetings and events, marketing, and certain other
expenses as a result of our expense management initiatives; (ii) a decrease in variable compensation and sales commission expenses as a
result of lower sales and operating results; (iii) lower acquisition-related compensation expenses; and (iv) favorable foreign currency
exchange rate effects.
During the second half of fiscal 2009, we implemented an enhanced early retirement program, a voluntary program that was offered to
eligible employees. In connection with the enhanced early retirement program, we incurred a charge of approximately $110 million within
operating expenses in fiscal 2009. In addition, during the second half of fiscal 2009, we incurred approximately $100 million of severance
charges within operating expenses in connection with limited workforce reduction actions that impacted just over 2,000 employees.
The year-over-year changes within operating expenses including the effects of foreign currency exchange rates, net of hedging, are
summarized by line item as follows:
R&D Expenses
Fiscal 2009 Compared with Fiscal 2008
The decrease in R&D expenses for fiscal 2009 was primarily due to lower discretionary expenses, lower variable compensation expenses,
and lower acquisition-related compensation expenses. Lower discretionary expenses included reduced expenses for travel, meeting and
events, and outside services. These decreases were partially offset by the enhanced early retirement and limited workforce reduction
charges mentioned above, as well as increased employee share-based compensation expenses in fiscal 2009. All of our R&D costs are
expensed as incurred, and we continue to invest in R&D in order to bring a broad range of products to market in a timely fashion. If we
believe that we are unable to enter a particular market in a timely manner with internally-developed products, we may purchase or license
technology from other businesses or acquire businesses as an alternative to internal R&D.
Fiscal 2008 Compared with Fiscal 2007
R&D expenses increased in fiscal 2008 compared with fiscal 2007 primarily due to higher headcount-related expenses and compensation
expense related to our purchase of the minority interest in Nuova Systems, Inc. The higher headcount-related expenses in fiscal 2008
reflected our investment in R&D efforts for routers, switches, advanced technologies, and other product technologies.
24 Cisco Systems, Inc.