Cisco 2005 Annual Report Download - page 32
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35
Contractual Obligations
Our cash flows from operations are dependent on a number of factors, including fluctuations in our operating results, shipment
linearity, accounts receivable collections, inventory management, expensing stock options, and the timing and amount of tax and
other payments. As a result, the impact of contractual obligations on our liquidity and capital resources in future periods should be
analyzed in conjunction with such factors. In addition, we plan for and measure our liquidity and capital resources through an annual
budgeting process.
The following tables summarize our contractual obligations at July 30, 2005 and July 31, 2004 and exclude amounts recorded in
our Consolidated Balance Sheets (in millions):
July 30, 2005
Operating leases $ 1,260 $ 215 $ 281 $ 184 $ 580
Purchase commitments with contract manufacturers and suppliers 954 954 — — —
Purchase obligations 1,398 1,014 338 46 —
Total $ 3,612 $ 2,183 $ 619 $ 230 $ 580
Operating Leases We lease office space in several U.S. locations, as well as locations elsewhere in the Americas, EMEA, Asia Pacific, and
Japan. Operating lease amounts include future minimum lease payments under all our noncancelable operating leases with an initial
term in excess of one year.
Purchase Commitments with Contract Manufacturers and Suppliers We purchase components from a variety of suppliers and use several
contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage
manufacturing lead times and to help assure adequate component supply, we enter into agreements with contract manufacturers and
suppliers that either allow them to procure inventory based upon criteria as defined by us or that establish the parameters defining
our requirements. In certain instances, these agreements allow us the option to cancel, reschedule, and adjust our requirements based
on our business needs prior to firm orders being placed. Consequently, only a portion of our reported purchase commitments arising
from these agreements are firm, noncancelable, and unconditional commitments. The purchase commitments for inventory are
expected to be fulfilled within one year.
In addition to the above, we record a liability for firm, noncancelable, and unconditional purchase commitments for quantities
in excess of our future demand forecasts consistent with our allowance for inventory. As of July 30, 2005, the liability for our firm,
noncancelable, and unconditional purchase commitments was $107 million, compared with $141 million as of July 31, 2004. These
amounts are included in other accrued liabilities in our Consolidated Balance Sheets at July 30, 2005 and July 31, 2004, and are not
included in the preceding table.
Purchase Obligations Purchase obligations represent an estimate of all open purchase orders and contractual obligations in the ordinary
course of business, other than commitments with contract manufacturers and suppliers, for which we have not received the goods or
services. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to
cancel, reschedule, and adjust our requirements based on our business needs prior to the delivery of goods or performance of services.
Management’s Discussion and Analysis of Financial Condition and Results of Operations