Cisco 2013 Annual Report Download - page 87

Notes to Consolidated Financial Statements
1. Basis of Presentation
The fiscal year for Cisco Systems, Inc. (the “Company” or “Cisco”) is the 52 or 53 weeks ending on the last Saturday in July.
Fiscal 2013, fiscal 2012, and fiscal 2011 are each 52-week fiscal years. The Consolidated Financial Statements include the
accounts of Cisco and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The
Company conducts business globally and is primarily managed on a geographic basis in the following three geographic
segments: the Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).
The Company consolidates its investments in a venture fund managed by SOFTBANK Corp. and its affiliates
(“SOFTBANK”) and Insieme Networks, Inc. (“Insieme”) as these are variable interest entities and the Company is the primary
beneficiary. The noncontrolling interests attributed to SOFTBANK are presented as a separate component from the
Company’s equity in the equity section of the Consolidated Balance Sheets. SOFTBANK’s share of the earnings in the venture
fund and the loss attributable to the noncontrolling interests in Insieme are not presented separately in the Consolidated
Statements of Operations as these amounts are not material for any of the fiscal periods presented.
Certain reclassifications have been made to the amounts for prior years in order to conform to the current year’s presentation.
The Company has evaluated subsequent events through the date that the financial statements were issued.
2. Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original or remaining
maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with
various financial institutions.
(b) Available-for-Sale Investments The Company classifies its investments in both fixed income securities and publicly traded
equity securities as available-for-sale investments. Fixed income securities primarily consist of U.S. government securities, U.S.
government agency securities, non-U.S. government and agency securities, and corporate debt securities. These available-for-sale
investments are primarily held in the custody of a major financial institution. A specific identification method is used to determine
the cost basis of fixed income and public equity securities sold. These investments are recorded in the Consolidated Balance
Sheets at fair value. Unrealized gains and losses on these investments, to the extent the investments are unhedged, are included as
a separate component of accumulated other comprehensive income (AOCI), net of tax. The Company classifies its investments as
current based on the nature of the investments and their availability for use in current operations.
(c) Other-than-Temporary Impairments on Investments When the fair value of a debt security is less than its amortized cost, it
is deemed impaired, and the Company will assess whether the impairment is other than temporary. An impairment is
considered other than temporary if (i) the Company has the intent to sell the security, (ii) it is more likely than not that the
Company will be required to sell the security before recovery of the entire amortized cost basis, or (iii) the Company does not
expect to recover the entire amortized cost basis of the security. If impairment is considered other than temporary based on
condition (i) or (ii) described earlier, the entire difference between the amortized cost and the fair value of the debt security is
recognized in earnings. If an impairment is considered other than temporary based on condition (iii), the amount representing
credit losses (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).
The Company recognizes an impairment charge on publicly traded equity securities when a decline in the fair value of a
security below the respective cost basis is judged to be other than temporary. The Company considers various factors in
determining whether a decline in the fair value of these investments is other than temporary, including the length of time and
extent to which the fair value of the security has been less than the Company’s cost basis, the financial condition and near-term
prospects of the issuer, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for
any anticipated recovery in market value.
Investments in privately held companies are included in other assets in the Consolidated Balance Sheets and are primarily
accounted for using either the cost or equity method. The Company monitors these investments for impairments and makes
reductions in carrying values if the Company determines that an impairment charge is required based primarily on the financial
condition and near-term prospects of these companies.
(d) Inventories Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates
actual cost, on a first-in, first-out basis. The Company provides inventory write-downs based on excess and obsolete inventories
determined primarily by future demand forecasts. The write-down is measured as the difference between the cost of the inventory
and market based upon assumptions about future demand and charged to the provision for inventory, which is a component of
cost of sales. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes
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