Employee Benefit Plans

9 Months Ended

Apr. 25, 2020


(a)	Employee Stock Incentive Plans

Stock Incentive Plan Program Description As of April 25, 2020, we had one stock incentive plan: the 2005 Stock Incentive Plan (the “2005 Plan”). In addition, we have, in connection with our acquisitions of various companies, assumed the share-based awards granted under stock incentive plans of the acquired companies or issued share-based awards in replacement thereof. Share-based awards are designed to reward employees for their long-term contributions to us and provide incentives for them to remain with Cisco. The number and frequency of share-based awards are based on competitive practices, operating results of Cisco, government regulations, and other factors. Our primary stock incentive plan is summarized as follows:

2005 Plan The 2005 Plan provides for the granting of stock options, stock grants, stock units and stock appreciation rights (SARs), the vesting of which may be time-based or upon satisfaction of performance goals, or both, and/or other conditions. Employees (including employee directors and executive officers) and consultants of Cisco and its subsidiaries and affiliates and non-employee directors of Cisco are eligible to participate in the 2005 Plan. As of April 25, 2020, the maximum number of shares issuable under the 2005 Plan over its term was 694 million shares. The 2005 Plan may be terminated by the Board of Directors at any time and for any reason, and is currently set to terminate at the 2021 Annual Meeting unless re-adopted or extended by the shareholders prior to or on such date.

Under the 2005 Plan’s share reserve feature, a distinction is made between the number of shares in the reserve attributable to (i) stock options and SARs and (ii) “full value” awards (i.e., stock grants and stock units). Shares issued as stock grants, pursuant to stock units or pursuant to the settlement of dividend equivalents are counted against shares available for issuance under the 2005 Plan on a 1.5-to-1 ratio. For each share awarded as restricted stock or a restricted stock unit award under the 2005 Plan, 1.5 shares was deducted from the available share-based award balance. For restricted stock units that were awarded with vesting contingent upon the achievement of future financial performance or market-based metrics, the maximum awards that can be achieved upon full vesting of such awards. If awards issued under the 2005 Plan are forfeited or terminated for any reason before being exercised or settled, then the shares underlying such awards, plus the number of additional shares, if any, that counted against shares available for issuance under the 2005 Plan at the time of grant as a result of the application of the share ratio described above, will become available again for issuance under the 2005 Plan. As of April 25, 2020, 200 million shares were authorized for future grant under the 2005 Plan.


(b)	Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan under which 721.4 million shares of our common stock have been reserved for issuance as of April 25, 2020. Eligible employees are offered shares through a 24-month offering period, which consists of four consecutive 6-month purchase periods. Employees may purchase a limited amount of shares of our stock at a discount of up to 15% of the lesser of the fair market value at the beginning of the offering period or the end of each 6-month purchase period. The Employee Stock Purchase Plan is scheduled to terminate on the earlier of (i) January 3, 2030 and (ii) the date on which all shares available for issuance under the Employee Stock Purchase Plan are sold pursuant to exercised purchase rights. No shares were issued under the Purchase Plan during each of the third quarters of fiscal 2020 and 2019. We issued 9 million shares during the first nine months of each of fiscal 2020 and fiscal 2019. As of April 25, 2020, 150 million shares were available for issuance under the Employee Stock Purchase Plan.


(c)	Summary of Share-Based Compensation Expense

Share-based compensation expense consists primarily of expenses for stock options, stock purchase rights, restricted stock, and RSUs granted to employees. The following table summarizes share-based compensation expense (in millions):



	Three Months Ended				Nine Months Ended
	April 25, 2020		April 27, 2019		April 25, 2020		April 27, 2019
Cost of sales—product	$	23	$	22	$	69	$	67
Cost of sales—service	37		32		107		96
Share-based compensation expense in cost of sales	60		54		176		163
Research and development	148		135		440		398
Sales and marketing	125		124		371		386
General and administrative	49		63		164		190
Restructuring and other charges	5		3		18		45
Share-based compensation expense in operating expenses	327		325		993		1,019
Total share-based compensation expense	$	387	$	379	$	1,169	$	1,182
Income tax benefit for share-based compensation	$	81	$	98	$	321	$	389

As of April 25, 2020, the total compensation cost related to unvested share-based awards not yet recognized was $3.4 billion which is expected to be recognized over approximately 2.6 years on a weighted-average basis.


(d)	Restricted Stock and Stock Unit Awards

A summary of the restricted stock and stock unit activity, which includes time-based and performance-based or market-based RSUs, is as follows (in millions, except per-share amounts):



	Restricted Stock/ Stock Units		Weighted-Average Grant Date Fair Value per Share		Aggregate Fair Value
UNVESTED BALANCE AT JULY 28, 2018	119		$	30.56
Granted	45		47.71
Vested	(50	)	29.25		$	2,446
Canceled/forfeited/other	(14	)	32.01
UNVESTED BALANCE AT JULY 27, 2019	100		38.66
Granted	31		41.70
Vested	(31	)	33.64		$	1,448
Canceled/forfeited/other	(8	)	40.30
UNVESTED BALANCE AT APRIL 25, 2020	92		$	41.14