Cisco 2002 Annual Report Download - page 24

Management’s Discussion and Analysis of Financial Condition and Results of Operations
22 Cisco Systems, Inc. 2002 Annual Report
In the case of Andiamo, as of July 27, 2002, we had an option to acquire the remaining interests not owned by us for consideration
consisting of shares of our common stock. In addition, Andiamo had a put option enabling them to require us to acquire the
remaining interests not owned by us, subject to the fulfillment of various conditions, including the achievement of specified
technology and other milestones. As of July 27, 2002, we funded $63 million of our $84 million investment commitment to Andiamo.
Upon full funding of the commitment and based on certain terms and conditions, we will hold a promissory note that is convertible
into approximately 44% of the equity of Andiamo. We are also committed to provide additional funding to Andiamo through the
closing of the acquisition of approximately $100 million. Since making our initial investment in the third quarter of fiscal 2001,
we have expensed the entire amount funded as R&D costs, as if such expenses constituted our development costs.
On August 19, 2002, we entered into a definitive agreement to acquire Andiamo, which represented the exercise of our rights
(see Note 14 to the Consolidated Financial Statements).
Purchase Commitments with Contract Manufacturers and Suppliers We use several contract manufacturers and suppliers to provide
manufacturing services for our products. During the normal course of business, in order to reduce manufacturing lead times and
ensure adequate component supply, we enter into agreements with certain contract manufacturers and suppliers that allow them
to procure inventory based upon criteria as defined by us. As of July 27, 2002, we have purchase commitments for inventory of
approximately $800 million.
Other Commitments In fiscal 2001, we entered into an agreement to invest approximately $1.0 billion in venture funds managed
by SOFTBANK Corp. and its affiliates (“SOFTBANK”). These venture funds are required to be funded upon demand by SOFTBANK.
As of July 27, 2002, we have funded $100 million of this investment commitment.
We provide structured financing to certain qualified customers to be used for the purchase of equipment and other needs
through our wholly-owned subsidiary, Cisco Systems Capital Corporation. At July 27, 2002, the outstanding loan commitments
were approximately $948 million, subject to the customers achieving certain financial covenants, of which approximately
$209 million was eligible for draw down. These loan commitments may be funded over a two- to three-year period, provided
that these customers achieve specific business milestones and financial covenants.
We have entered into several agreements to purchase or construct real estate, subject to the satisfaction of certain conditions.
As of July 27, 2002, the total amount of commitments, if certain conditions are met, was approximately $491 million.
At July 27, 2002, we have a commitment of approximately $190 million to purchase the remaining portion of the minority
interest of Cisco Systems, K.K. (Japan).
We also have certain other funding commitments of approximately $152 million at July 27, 2002 related to our privately
held investments.
Stock Repurchase Program
In September 2001, the Board of Directors authorized a stock repurchase program to acquire outstanding common stock in the
open market or negotiated transactions. Under the program, up to $3 billion of our common stock could be reacquired over two
years. In August 2002, the Board of Directors increased our stock repurchase program by $5 billion to a total of $8 billion of
our common stock available for repurchase through September 12, 2003.
During fiscal 2002, we repurchased and retired approximately 124 million shares of our common stock for an aggregate
purchase price of approximately $1.9 billion. Including the amount approved by the Board of Directors in August 2002 as discussed
above, the remaining authorized amount for stock repurchase is $6.1 billion.
Based on past performance and current expectations, we believe that our cash and cash equivalents, short-term investments, and
cash generated from operations will satisfy our working capital needs, capital expenditures, investment requirements, stock
repurchases, commitments (see Note 8 to the Consolidated Financial Statements), future customer financings, and other liquidity
requirements associated with our existing operations through at least the next 12 months. In addition, there are no transactions,
arrangements, and other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect
liquidity or the availability of our requirements for capital resources.