Cisco 2015 Annual Report Download - page 122

The assumptions for the valuation of employee stock purchase rights are summarized as follows:
EMPLOYEE STOCK PURCHASE RIGHTS
Years Ended July 25, 2015 July 26, 2014 July 27, 2013
Weighted-average assumptions:
Expected volatility ................................................ 26.0% 25.1% 28.7%
Risk-free interest rate .............................................. 0.3% 0.1% 0.4%
Expected dividend ................................................. 2.8% 2.8% 1.5%
Expected life (in years) ............................................ 1.8 0.8 1.8
Weighted-average estimated grant date fair value per share ........... $ 6.54 $ 5.54 $ 4.68
The valuation of employee stock purchase rights and the related assumptions are for the employee stock purchases made during
the respective fiscal years.
The Company uses third-party analyses to assist in developing the assumptions used in, as well as calibrating, its lattice-binomial
and Black-Scholes models. The Company is responsible for determining the assumptions used in estimating the fair value of its
share-based payment awards.
The Company used the implied volatility for traded options (with contract terms corresponding to the expected life of the
employee stock purchase rights) on the Company’s stock as the expected volatility assumption required in the Black-Scholes
model. The implied volatility is more representative of future stock price trends than historical volatility. The risk-free interest
rate assumption is based upon observed interest rates appropriate for the term of the Company’s employee stock purchase rights.
The dividend yield assumption is based on the history and expectation of dividend payouts at the grant date.
(h) Employee 401(k) Plans
The Company sponsors the Cisco Systems, Inc. 401(k) Plan (the “Plan”) to provide retirement benefits for its employees. As
allowed under Section 401(k) of the Internal Revenue Code, the Plan provides for tax-deferred salary contributions and after-tax
contributions for eligible employees. The Plan allows employees to contribute up to 75% of their annual eligible earnings to the
Plan on a pretax and after-tax basis, including Roth contributions. Employee contributions are limited to a maximum annual
amount as set periodically by the Internal Revenue Code. The Company matches pretax and Roth employee contributions up to
100% of the first 4.5% of eligible earnings that are contributed by employees. Therefore, the maximum matching contribution
that the Company may allocate to each participant’s account will not exceed $11,925 for the 2015 calendar year due to the
$265,000 annual limit on eligible earnings imposed by the Internal Revenue Code. All matching contributions vest immediately.
The Company’s matching contributions to the Plan totaled $244 million, $236 million, and $234 million in fiscal 2015, 2014, and
2013, respectively.
The Plan allows employees who meet the age requirements and reach the Plan contribution limits to make catch-up contributions
(pretax or Roth) not to exceed the lesser of 75% of their annual eligible earnings or the limit set forth in the Internal Revenue
Code. Catch-up contributions are not eligible for matching contributions. In addition, the Plan provides for discretionary profit-
sharing contributions as determined by the Board of Directors. Such contributions to the Plan are allocated among eligible
participants in the proportion of their salaries to the total salaries of all participants. There were no discretionary profit-sharing
contributions made in fiscal 2015, 2014, and 2013.
The Company also sponsors other 401(k) plans as a result of acquisitions of other companies. The Company’s contributions to
these plans were not material to the Company on either an individual or aggregate basis for any of the fiscal years presented.
(i) Deferred Compensation Plans
The Cisco Systems, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”), a nonqualified deferred compensation
plan, became effective in 2007. As required by applicable law, participation in the Deferred Compensation Plan is limited to a
select group of the Company’s management employees. Under the Deferred Compensation Plan, which is an unfunded and
unsecured deferred compensation arrangement, a participant may elect to defer base salary, bonus, and/or commissions, pursuant
to such rules as may be established by the Company, up to the maximum percentages for each deferral election as described in the
plan. The Company may also, at its discretion, make a matching contribution to the employee under the Deferred Compensation
Plan. A matching contribution equal to 4.5% of eligible compensation in excess of the Internal Revenue Code limit for qualified
plans for calendar year 2015 that is deferred by participants under the Deferred Compensation Plan (with a $1.5 million cap on
eligible compensation) will be made to eligible participants’ accounts at the end of calendar year 2015. The deferred
compensation liability under the Deferred Compensation Plan, together with a deferred compensation plan assumed from
Scientific-Atlanta, was approximately $536 million and $509 million as of July 25, 2015 and July 26, 2014, respectively, and was
recorded primarily in other long-term liabilities.
114