Cisco 2012 Annual Report Download - page 55

Our Level 2 securities are valued using quoted market prices for similar instruments or nonbinding market prices
that are corroborated by observable market data. We use inputs such as actual trade data, benchmark yields,
broker/dealer quotes, and other similar data, which are obtained from independent pricing vendors, quoted
market prices, or other sources to determine the ultimate fair value of our assets and liabilities. We use such
pricing data as the primary input, to which we have not made any material adjustments during fiscal 2012 and
fiscal 2011, to make our assessments and determinations as to the ultimate valuation of our investment portfolio.
We are ultimately responsible for the financial statements and underlying estimates.
The inputs and fair value are reviewed for reasonableness, may be further validated by comparison to publicly
available information, and could be adjusted based on market indices or other information that management
deems material to its estimate of fair value. The assessment of fair value can be difficult and subjective.
However, given the relative reliability of the inputs we use to value our investment portfolio, and because
substantially all of our valuation inputs are obtained using quoted market prices for similar or identical assets, we
do not believe that the nature of estimates and assumptions affected by levels of subjectivity and judgment was
material to the valuation of the investment portfolio as of July 28, 2012. We had no Level 3 investments in our
total portfolio as of July 28, 2012.
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.
Impairment charges on our investments in publicly traded equity securities were not material in fiscal 2012,
2011, and 2010. There were no impairment charges on investments in fixed income securities in fiscal 2012,
2011, and 2010. 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 28, 2012, our investments in privately held companies were $858 million, compared with $796 million
as of July 30, 2011, 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
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