Cisco 2015 Annual Report Download - page 86

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 2015, fiscal 2014, and fiscal 2013 are each 52-week fiscal years. The Consolidated Financial Statements include the
accounts of Cisco and its subsidiaries. All 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”) as
this is a variable interest entity 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 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, corporate debt securities, and U.S. agency mortgage-backed 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 in
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