Cisco 2011 Annual Report Download - page 71

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Share-Based Compensation Expense
The following table presents share-based compensation expense (in millions):
Years Ended July 30, 2011 July 31, 2010 July 25, 2009
Cost of sales—product ........................................ $61 $57 $46
Cost of sales—service ......................................... 177 164 128
Share-based compensation expense in cost of sales .................. 238 221 174
Research and development ..................................... 481 450 382
Sales and marketing .......................................... 651 602 482
General and administrative ..................................... 250 244 193
Share-based compensation expense in operating expenses ............ 1,382 1,296 1,057
Total share-based compensation expense .......................... $1,620 $1,517 $1,231
The increase in share-based compensation expense for fiscal 2011 was due primarily to a change in vesting
periods from five to four years for awards granted beginning in fiscal 2009, the timing of annual employee
grants, and the overall growth in headcount and number of share-based awards granted on a year-over-year basis.
Share-based compensation expense increased for fiscal 2010 compared with fiscal 2009 due primarily to the
effects of straight-line vesting compared with accelerated vesting for options granted prior to fiscal 2006, a
change in vesting periods from five to four years for awards granted beginning in fiscal 2009, and the impact of
the extra week in fiscal 2010. See Note 14 to the Consolidated Financial Statements.
Amortization of Purchased Intangible Assets
The following table presents the amortization of purchased intangible assets included in operating expenses (in
millions):
Years Ended July 30, 2011 July 31, 2010 July 25, 2009
Amortization of purchased intangible assets included in operating expenses . . . $520 $491 $533
For fiscal 2011, as compared with fiscal 2010, the increase in the amortization of purchased intangible assets was
due to impairment charges included in operating expenses of $92 million in fiscal 2011, partially offset by lower
amortization due to certain purchased intangible assets having become fully amortized. The impairment charges
were primarily due to declines in estimated fair value as a result of reductions in expected future cash flows
associated with certain of our consumer products. For fiscal 2010, the decrease in the amortization of purchased
intangible assets included in operating expenses was primarily due to lower impairment charges in fiscal 2010 as
compared with fiscal 2009, partially offset by increased amortization of purchased intangible assets from
acquisitions completed during fiscal 2010. For additional information regarding purchased intangible assets, see
Note 4 to the Consolidated Financial Statements.
The fair value of acquired technology and patents, as well as acquired technology under development, is
determined at acquisition date primarily using the income approach, which discounts expected future cash flows
to present value. The discount rates used in the present value calculations are typically derived from a weighted-
average cost of capital analysis and then adjusted to reflect risks inherent in the development lifecycle as
appropriate. We consider the pricing model for products related to these acquisitions to be standard within the
high-technology communications industry, and the applicable discount rates represent the rates that market
participants would use for valuation of such intangible assets.
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