Cisco 2013 Annual Report Download - page 123

The assumptions for the valuation of employee stock purchase rights are summarized as follows:
EMPLOYEE STOCK PURCHASE RIGHTS
Years Ended
July 27,
2013
July 28,
2012
July 30,
2011
Weighted-average assumptions:
Expected volatility .......................................... 28.7% 27.2% 35.1%
Risk-free interest rate ........................................ 0.4% 0.2% 0.9%
Expected dividend .......................................... 1.5% 1.5% 0.0%
Expected life (in years) ....................................... 1.8 0.8 1.8
Weighted-average estimated grant date fair value per share .............. $4.68 $3.81 $6.31
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 from 1% to 75% of their annual
compensation to the Plan on a pretax and after-tax basis, and effective January 1, 2011, the Plan also allows employees to
make Roth contributions. Employee contributions are limited to a maximum annual amount as set periodically by the Internal
Revenue Code. The Company matches pretax 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 $11,475 for the 2013 calendar year due to the $255,000 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 $234 million, $231 million, and $239 million in fiscal 2013, 2012, and 2011, respectively.
The Plan allows employees who meet the age requirements and reach the Plan contribution limits to make a catch-up
contribution not to exceed the lesser of 75% of their eligible compensation or the limit set forth in the Internal Revenue Code.
The 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 2013, 2012, and 2011.
The Company also sponsors other 401(k) plans that arose from 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 2013 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 2013. The deferred compensation liability under the Deferred Compensation Plan, together with a deferred
compensation plan assumed from Scientific-Atlanta, was approximately $441 million and $355 million as of July 27, 2013 and
July 28, 2012, respectively, and was recorded primarily in other long-term liabilities.
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