cisco-annual-report-2021

(e) Valuation of Employee Share-Based Awards
Time-based restricted stock units and PRSUs that are based on our financial performance metrics or non-financial operating
goals are valued using the market value of our common stock on the date of grant, discounted for the present value of expected
dividends. On the date of grant, we estimated the fair value of the total shareholder return (TSR) component of the PRSUs using
a Monte Carlo simulation model. The assumptions for the valuation of time-based RSUs and PRSUs are summarized as follows:
RESTRICTED STOCK UNITS
Years Ended July 31, 2021 July 25, 2020 July 27, 2019
Number of shares granted (in millions) . . . . . . . . . . . . . . . . . . . . . . . 48 47 43
Grant date fair value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42.04 $ 42.68 $ 47.75
Weighted-average assumptions/inputs:
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3% 3.1 % 2.7%
Range of risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0% – 0.9% 0.0% – 2.0% 0.0% – 2.9%
PERFORMANCE BASED RESTRICTED STOCK UNITS
Years Ended July 31, 2021 July 25, 2020 July 27, 2019
Number of shares granted (in millions) . . . . . . . . . . . . . . . . . . . . . . . 2 2 2
Grant date fair value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37.91 $ 41.91 $ 47.00
Weighted-average assumptions/inputs:
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6% 2.8% 2.8%
Range of risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1% – 0.4% 1.7% – 2.0% 2.1% – 3.0%
The PRSUs granted during the fiscal years presented are contingent on the achievement of our financial performance metrics,
our comparative market-based returns, or the achievement of financial and non-financial operating goals. For the awards based
on financial performance metrics or comparative market-based returns, generally 50% of the PRSUs are earned based on the
average of annual operating cash flow and earnings per share goals established at the beginning of each fiscal year over a
three-year performance period. Generally, the remaining 50% of the PRSUs are earned based on our TSR measured against
the benchmark TSR of a peer group over the same period. Each PRSU recipient could vest in 0% to 150% of the target shares
granted contingent on the achievement of our financial performance metrics or our comparative market-based returns, and 0%
to 100% of the target shares granted contingent on the achievement of non-financial operating goals.
The assumptions for the valuation of employee stock purchase rights are summarized as follows:
EMPLOYEE STOCK PURCHASE RIGHTS
Years Ended July 31, 2021 July 25, 2020 July 27, 2019
Weighted-average assumptions:
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.2% 22.2% 20.4%
Risk-free interest rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3% 1.8% 1.9%
Expected dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2% 3.0% 3.0%
Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 1.3 1.3
Weighted-average estimated grant date fair value per share . . . . . . . . . . . . . . . . . . . . . . $ 12.46 $ 10.20 $ 9.06
The valuation of employee stock purchase rights and the related assumptions are for the employee stock purchases made during
the respective fiscal years.
We used third-party analyses to assist in developing the assumptions used in our Black-Scholes model. We are responsible for
determining the assumptions used in estimating the fair value of our share-based payment awards.
We used the implied volatility for traded options (with contract terms corresponding to the expected life of the employee stock
purchase rights) on our 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 our employee stock purchase rights. The dividend yield assumption is based
on the history and expectation of dividend payouts at the grant date.
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