Cisco 2003 Annual Report Download - page 36

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INVESTMENTS IN PRIVATELY HELD COMPANIES
We have invested in privately held companies, many of which can still be considered in the startup or development stages. These
investments are inherently risky as the markets for the technologies or products they have under development are typically in the early
stages and may never materialize. We could lose our entire initial investment in these companies. As of July 26, 2003, these investments
were $516 million, compared with $477 million at July 27, 2002.
Our evaluation of equity investments in private and public companies is based on the fundamentals of the business, including
among other factors, the nature of their technologies and potential for financial return to us.
DERIVATIVE INSTRUMENTS
We enter into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on foreign currency
receivables, investments, and payables, primarily denominated in Australian, Canadian, Japanese, and several European currencies,
including the euro and British pound. We also periodically hedge foreign currency forecasted transactions related to certain operating
expenses with currency options. The impact of foreign currency fluctuations on foreign currency sales has not been material because
our sales are primarily denominated in U.S. dollars.
Foreign exchange forward and option contracts as of July 26, 2003 are summarized as follows (in millions):
Notional Amount Fair Value
Forward contracts:
Purchased $877 $ —
Sold $ 527 $ (6)
Option contracts:
Purchased $759 $ 22
Sold $ — $ —
Our foreign exchange forward contracts related to current assets and liabilities generally range from one to three months in original
maturity. Additionally, we have entered into foreign exchange forward contracts related to long-term financings with maturities of
up to two years. The foreign exchange forward contracts related to investments generally have maturities of less than one year. Currency
option contracts generally have maturities of less than one year. We do not enter into foreign exchange forward and option contracts
for trading purposes.
We do not expect gains or losses on these derivative instruments to have a material impact on our financial results (See Note 8 to
the Consolidated Financial Statements.)
34 CISCO SYSTEMS, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK