Cisco 2011 Annual Report Download - page 55

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material to the valuation of the investment portfolio as of July 30, 2011. Level 3 assets do not represent a
significant portion of our total investment portfolio as of July 30, 2011.
Other-than-Temporary Impairments We recognize an impairment charge when the declines in the fair values of
our fixed income or publicly traded equity securities below their cost basis are judged to be other than temporary.
The ultimate value realized on these securities, to the extent unhedged, is subject to market price volatility until
they are sold.
If the fair value of a debt security is less than its amortized cost, we assess whether the impairment is other than
temporary. An impairment is considered other than temporary if (i) we have the intent to sell the security, (ii) it is
more likely than not that we will be required to sell the security before recovery of its entire amortized cost basis,
or (iii) we do not expect to recover the entire amortized cost of the security. If an impairment is considered other
than temporary based on (i) or (ii) described in the prior sentence, the entire difference between the amortized
cost and the fair value of the security is recognized in earnings. If an impairment is considered other than
temporary based on condition (iii), the amount representing credit loss, defined as the difference between the
present value of the cash flows expected to be collected and the amortized cost basis of the debt security, will be
recognized in earnings, and the amount relating to all other factors will be recognized in other comprehensive
income (OCI). In estimating the amount and timing of cash flows expected to be collected, we consider all
available information, including past events, current conditions, the remaining payment terms of the security, the
financial condition of the issuer, expected defaults, and the value of underlying collateral.
For publicly traded equity securities, we consider various factors in determining whether we should recognize an
impairment charge, including the length of time and extent to which the fair value has been less than our cost
basis, the financial condition and near-term prospects of the issuer, and our intent and ability to hold the
investment for a period of time sufficient to allow for any anticipated recovery in market value.
There were no significant impairment charges on our investments in publicly traded equity securities in fiscal
2011 and 2010. There were no impairment charges on investments in fixed income securities in fiscal 2011 and
2010. In fiscal 2009, impairment charges of $258 million for investments in fixed income securities and publicly
traded equity securities were recognized in earnings. Our ongoing consideration of all the factors described
previously could result in additional impairment charges in the future, which could adversely affect our net
income.
We also have investments in privately held companies, some of which are in the startup or development stages.
As of July 30, 2011, our investments in privately held companies were $796 million, compared with $756 million
as of July 31, 2010, and were included in other assets. See Note 6 to the Consolidated Financial Statements. We
monitor these investments for events or circumstances indicative of potential impairment and will make
appropriate reductions in carrying values if we determine that an impairment charge is required, based primarily
on the financial condition and near-term prospects of these companies. These investments are inherently risky
because the markets for the technologies or products these companies are developing are typically in the early
stages and may never materialize. Our impairment charges on investments in privately held companies were $10
million, $25 million, and $85 million in fiscal 2011, 2010, and 2009, respectively.
Goodwill and Purchased Intangible Asset Impairments
Our methodology for allocating the purchase price relating to purchase acquisitions is determined through
established valuation techniques. Goodwill represents a residual value as of the acquisition date, which in most
cases results in measuring goodwill as an excess of the purchase consideration transferred plus the fair value of
any noncontrolling interest in the acquired company over the fair value of net assets acquired, including
contingent consideration. We perform goodwill impairment tests on an annual basis in the fourth fiscal quarter
and between annual tests in certain circumstances for each reporting unit. Effective in fiscal 2010, the assessment
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