Cisco Systems Inc. (CSCO)

Analysis of Property, Plant and Equipment

Difficulty: Advanced

Property, Plant and Equipment Accounting Policy

Property and equipment are stated at cost, less accumulated depreciation or amortization, whenever applicable. Depreciation and amortization expenses for property and equipment were approximately $1.1 billion, $1.0 billion, and $1.1 billion for fiscal 2017, 2016, and 2015, 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
Leasehold improvements	Shorter of remaining lease term or up to 10 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
Furniture and fixtures	5 years

Source: Cisco Systems Inc., Annual Report

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Property, Plant and Equipment Disclosure

Cisco Systems Inc., Statement of Financial Position, Property, Plant and Equipment

USD $ in millions

	Jul 29, 2017	Jul 30, 2016	Jul 25, 2015	Jul 26, 2014	Jul 27, 2013	Jul 28, 2012
Land, buildings, and building and leasehold improvements	4,926	4,778	4,495	4,468	4,426	4,363
Computer equipment and related software	1,258	1,288	1,310	1,425	1,416	1,469
Production, engineering, and other equipment	5,707	5,658	5,753	5,756	5,721	5,364
Operating lease assets	356	296	372	362	326	300
Furniture and fixtures	572	543	497	509	497	487
Gross property and equipment	12,819	12,563	12,427	12,520	12,386	11,983
Accumulated depreciation and amortization	(9,497)	(9,057)	(9,095)	(9,268)	(9,064)	(8,581)
Property and equipment, net	3,322	3,506	3,332	3,252	3,322	3,402

Source: Based on data from Cisco Systems Inc. Annual Reports

Item	Description	The company
Operating lease assets	The amount of lessor property subject to or available for lease, at cost adjusted for any previously recognized impairment charges, by major property class, as of the balance sheet date.	Cisco Systems Inc.'s operating lease assets declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level.
Furniture and fixtures	Carrying amount at the balance sheet date for long-lived, depreciable asset commonly used in offices and stores. Examples include desks, chairs, and store fixtures.	Cisco Systems Inc.'s furniture and fixtures increased from 2015 to 2016 and from 2016 to 2017.
Gross property and equipment	Carrying amount at the balance sheet date for long-lived physical assets used in the normal conduct of business and not intended for resale. This can include land, physical structures, machinery, vehicles, furniture, computer equipment, construction in progress, and similar items. Amount does not include depreciation.	Cisco Systems Inc.'s gross property and equipment increased from 2015 to 2016 and from 2016 to 2017.
Property and equipment, net	Tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, and production equipment.	Cisco Systems Inc.'s property and equipment, net increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

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Property, Plant and Equipment Ratios (Summary)

Cisco Systems Inc., Property, Plant and Equipment Ratios

	Jul 29, 2017	Jul 30, 2016	Jul 25, 2015	Jul 26, 2014	Jul 27, 2013	Jul 28, 2012
Average age	74.09%	72.09%	73.19%	74.03%	73.18%	71.61%
Estimated total useful life (years)	12	13	11	10	10	11
Estimated age, time elapsed since purchase (years)	9	9	8	8	8	8
Estimated remaining life (years)	3	4	3	3	3	3

Ratio	Description	The company
Average age	As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company's fixed asset base is old or new. Newer assets are likely to be more efficient.	Cisco Systems Inc.'s average age of depreciable property, plant and equipment improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Estimated total useful life	Over longer time periods, this ratio is a useful measure of company's depreciation policy and can be used for comparisons with competitors.	Cisco Systems Inc.'s estimated total useful life of depreciable property, plant and equipment increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.
Estimated time elapsed since purchase	The approximate age in years of a company's fixed assets. Useful for comparison purposes.	Cisco Systems Inc.'s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level.
Estimated remaining life		Cisco Systems Inc.'s estimated remaining life of depreciable property, plant and equipment increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

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Average Age

	Jul 29, 2017	Jul 30, 2016	Jul 25, 2015	Jul 26, 2014	Jul 27, 2013	Jul 28, 2012
Selected Financial Data (USD $ in millions)
Accumulated depreciation and amortization	9,497	9,057	9,095	9,268	9,064	8,581
Gross property and equipment	12,819	12,563	12,427	12,520	12,386	11,983
Ratio
Average age¹	74.09%	72.09%	73.19%	74.03%	73.18%	71.61%

2017 Calculations

¹ Average age = 100 × Accumulated depreciation and amortization ÷ Gross property and equipment
= 100 × 9,497 ÷ 12,819 = 74.09%

Ratio	Description	The company
Average age	As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company's fixed asset base is old or new. Newer assets are likely to be more efficient.	Cisco Systems Inc.'s average age of depreciable property, plant and equipment improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Estimated Total Useful Life

	Jul 29, 2017	Jul 30, 2016	Jul 25, 2015	Jul 26, 2014	Jul 27, 2013	Jul 28, 2012
Selected Financial Data (USD $ in millions)
Gross property and equipment	12,819	12,563	12,427	12,520	12,386	11,983
Depreciation and amortization expenses for property and equipment	1,100	1,000	1,100	1,200	1,200	1,100
Ratio
Estimated total useful life (years)¹	12	13	11	10	10	11

2017 Calculations

¹ Estimated total useful life (years) = Gross property and equipment ÷ Depreciation and amortization expenses for property and equipment
= 12,819 ÷ 1,100 = 12

Ratio	Description	The company
Estimated total useful life	Over longer time periods, this ratio is a useful measure of company's depreciation policy and can be used for comparisons with competitors.	Cisco Systems Inc.'s estimated total useful life of depreciable property, plant and equipment increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.

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Estimated Age, Time Elapsed Since Purchase

	Jul 29, 2017	Jul 30, 2016	Jul 25, 2015	Jul 26, 2014	Jul 27, 2013	Jul 28, 2012
Selected Financial Data (USD $ in millions)
Accumulated depreciation and amortization	9,497	9,057	9,095	9,268	9,064	8,581
Depreciation and amortization expenses for property and equipment	1,100	1,000	1,100	1,200	1,200	1,100
Ratio
Time elapsed since purchase (years)¹	9	9	8	8	8	8

2017 Calculations

¹ Time elapsed since purchase (years) = Accumulated depreciation and amortization ÷ Depreciation and amortization expenses for property and equipment
= 9,497 ÷ 1,100 = 9

Ratio	Description	The company
Estimated time elapsed since purchase	The approximate age in years of a company's fixed assets. Useful for comparison purposes.	Cisco Systems Inc.'s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level.

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Estimated Remaining Life

	Jul 29, 2017	Jul 30, 2016	Jul 25, 2015	Jul 26, 2014	Jul 27, 2013	Jul 28, 2012
Selected Financial Data (USD $ in millions)
Property and equipment, net	3,322	3,506	3,332	3,252	3,322	3,402
Depreciation and amortization expenses for property and equipment	1,100	1,000	1,100	1,200	1,200	1,100
Ratio
Estimated remaining life (years)¹	3	4	3	3	3	3

2017 Calculations

¹ Estimated remaining life (years) = Property and equipment, net ÷ Depreciation and amortization expenses for property and equipment
= 3,322 ÷ 1,100 = 3

Ratio	Description	The company
Estimated remaining life		Cisco Systems Inc.'s estimated remaining life of depreciable property, plant and equipment increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

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