Cisco 2013 Annual Report Download - page 89

or end-user customers. Deferred revenue relating to these financing arrangements is recorded in accordance with revenue
recognition policies or for the fair value of the financing guarantees.
(g) Depreciation and Amortization Property and equipment are stated at cost, less accumulated depreciation or amortization,
whenever applicable. Depreciation and amortization expenses for property and equipment were approximately $1.2 billion,
$1.1 billion, and $1.1 billion for fiscal 2013, 2012, and 2011, respectively. Depreciation and amortization are computed using
the straight-line method, generally over the following periods:
Asset Category Period
Buildings 25 years
Building improvements 10 years
Furniture and fixtures 5 years
Leasehold improvements Shorter of remaining lease term or 5 years
Computer equipment and related software 30 to 36 months
Production, engineering, and other equipment Up to 5 years
Operating lease assets Based on lease term generally up to 3 years
(h) Business Combinations The Company allocates the fair value of the purchase consideration of its acquisitions to the
tangible assets, liabilities, and intangible assets acquired, including in-process research and development (IPR&D), based on
their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable
assets and liabilities is recorded as goodwill. IPR&D is initially capitalized at fair value as an intangible asset with an
indefinite life and assessed for impairment thereafter. When a project underlying reported IPR&D is completed, the
corresponding amount of IPR&D is reclassified as an amortizable purchased intangible asset and is amortized over the asset’s
estimated useful life. Acquisition-related expenses and restructuring costs are recognized separately from the business
combination and are expensed as incurred.
(i) Goodwill and Purchased Intangible Assets Goodwill is tested for impairment on an annual basis in the fourth fiscal quarter
and, when specific circumstances dictate, between annual tests. When impaired, the carrying value of goodwill is written down
to fair value. The goodwill impairment test involves a two-step process. The first step, identifying a potential impairment,
compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value of the reporting
unit exceeds its fair value, the second step would need to be conducted; otherwise, no further steps are necessary as no
potential impairment exists. The second step, measuring the impairment loss, compares the implied fair value of the reporting
unit goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value over the
respective implied fair value is recognized as an impairment loss. Purchased intangible assets with finite lives are carried at
cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets,
generally two to seven years. See “Long-Lived Assets,” following, for the Company’s policy regarding impairment testing of
purchased intangible assets with finite lives. Purchased intangible assets with indefinite lives are assessed for potential
impairment annually or when events or circumstances indicate that their carrying amounts might be impaired.
(j) Long-Lived Assets Long-lived assets that are held and used by the Company are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of
recoverability of long-lived assets is based on an estimate of the undiscounted future cash flows resulting from the use of the
asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold
and use is based on the difference between the fair value of the asset and its carrying value. Long-lived assets to be disposed of
are reported at the lower of carrying amount or fair value less costs to sell.
(k) Fair Value Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When determining the fair value measurements for
assets and liabilities required or permitted to be either recorded or disclosed at fair value, the Company considers the principal
or most advantageous market in which it would transact, and it also considers assumptions that market participants would use
when pricing the asset or liability.
The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of
independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair
value hierarchy is as follows:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
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