Cisco 2014 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 26,
2014
July 27,
2013
July 28,
2012
Weighted-average assumptions:
Expected volatility .......................................... 25.1% 28.7% 27.2%
Risk-free interest rate ........................................ 0.1% 0.4% 0.2%
Expected dividend .......................................... 2.8% 1.5% 1.5%
Expected life (in years) ....................................... 0.8 1.8 0.8
Weighted-average estimated grant date fair value per share .............. $5.54 $4.68 $3.81
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 including 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 $11,700 for the 2014
calendar year due to the $260,000 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 $236 million, $234 million, and
$231 million in fiscal 2014, 2013, and 2012, 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 2014, 2013, and 2012.
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 2014 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 2014. The deferred compensation liability under the Deferred Compensation Plan, together with a
deferred compensation plan assumed from Scientific-Atlanta, was approximately $509 million and $441 million as of July 26,
2014 and July 27, 2013, respectively, and was recorded primarily in other long-term liabilities.
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