Cisco 2011 Annual Report Download - page 83

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Equity Price Risk
The fair value of our equity investments in publicly traded companies is subject to market price volatility. We
may hold equity securities for strategic purposes or to diversify our overall investment portfolio. Our equity
portfolio consists of securities with characteristics that most closely match the Standard & Poor’s 500 Index or
NASDAQ Composite Index. These equity securities are held for purposes other than trading. To manage our
exposure to changes in the fair value of certain equity securities, we may enter into equity derivatives designated
as hedging instruments.
Publicly Traded Equity Securities
The following tables present the hypothetical fair values of publicly traded equity securities as a result of selected
potential decreases and increases in the price of each equity security in the portfolio, excluding hedged equity
securities, if any. Potential fluctuations in the price of each equity security in the portfolio of plus or minus 10%,
20%, and 30% were selected based on potential near-term changes in those security prices. The hypothetical fair
values as of July 30, 2011 and July 31, 2010 are as follows (in millions):
VALUATION OF
SECURITIES
GIVEN AN X%
DECREASE IN
EACH STOCK’S PRICE
FAIR VALUE
AS OF
JULY 30,
2011
VALUATION OF
SECURITIES
GIVEN AN X%
INCREASE IN
EACH STOCK’S PRICE
(30%) (20%) (10%) 10% 20% 30%
Publicly traded equity securities ......... $953 $1,089 $1,225 $1,361 $1,497 $1,633 $1,769
VALUATION OF
SECURITIES
GIVEN AN X%
DECREASE IN
EACH STOCK’S PRICE
FAIR VALUE
AS OF
JULY 31,
2010
VALUATION OF
SECURITIES
GIVEN AN X%
INCREASE IN
EACH STOCK’S PRICE
(30%) (20%) (10%) 10% 20% 30%
Publicly traded equity securities ......... $876 $1,001 $1,126 $1,251 $1,376 $1,501 $1,626
There were no significant impairment charges on our investments in publicly traded equity securities in fiscal
2011 while there was no such impairment charge in 2010. For fiscal 2009 impairment charges on our investments
in publicly traded equity securities were $39 million.
Investments in Privately Held Companies
We have also invested in privately held companies. These investments are recorded in other assets in our
Consolidated Balance Sheets and are accounted for using primarily either the cost or the equity method. As of
July 30, 2011, the total carrying amount of our investments in privately held companies was $796 million,
compared with $756 million at July 31, 2010. Some of the privately held companies in which we invested are in
the startup or development stages. 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. We could lose our entire investment in these companies. Our evaluation of investments in privately
held companies is based on the fundamentals of the businesses invested in , including, among other factors, the
nature of their technologies and potential for financial return. Our impairment charges on investments in
privately held companies were $10 million, $25 million, and $85 million for fiscal 2011, 2010, and 2009,
respectively.
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