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62 Cisco Systems, Inc.
7. Long-Term Debt
In February 2006, the Company issued $500 million of senior oating interest rate notes due 2009 (the “2009 Notes”), $3.0 billion of 5.25%
senior notes due 2011 (the “2011 Notes”) and $3.0 billion of 5.50% senior notes due 2016 (the “2016 Notes”), for an aggregate principal
amount of $6.5 billion. The 2011 Notes and the 2016 Notes are redeemable by the Company at any time, subject to a make-whole premium.
To achieve its interest rate objectives, the Company entered into $6.0 billion notional amount of interest rate swaps. In effect, these swaps
convert the xed interest rates of the 2011 Notes and the 2016 Notes to oating interest rates based on the London Interbank Offered Rate
(LIBOR). Gains and losses in the fair value of the interest rate swaps offset changes in the fair value of the underlying debt. See Note 8 to the
Consolidated Financial Statements. The Company was in compliance with all debt covenants as of July 29, 2006.
The following table summarizes the Company’s long-term debt as of July 29, 2006 (in millions, except percentages):
Amount Effective Rate(1)
Senior notes:
2009 Notes $ 500 5.27%
2011 Notes 3,000 5.39%
2016 Notes 3,000 5.62%
Total senior notes 6,500
Other notes 5
Unamortized discount (18)
Fair value adjustment (155)
Total $ 6,332
(1) The effective rates for the 2011 Notes and the 2016 Notes reect the variable rate in effect as of July 29, 2006 on the interest rate swaps designated as fair value
hedges of those notes, including the amortization of the discount.
Interest is payable quarterly on the 2009 Notes and semi-annually on the 2011 Notes and 2016 Notes. Interest expense, net of the effect of
hedging, was $148 million for scal 2006 and was included in interest income, net in the Consolidated Statements of Operations. Cash paid
for interest during scal 2006 was $6 million.
8. Commitments and Contingencies
Operating Leases
The Company leases ofce space in several U.S. locations. Outside the United States, larger sites include Australia, Belgium, Canada, China,
France, Germany, India, Italy, Japan, and the United Kingdom. Rent expense totaled $181 million, $179 million, and $191 million in scal 2006,
2005, and 2004, respectively. Future annual minimum lease payments under all noncancelable operating leases with an initial term in excess
of one year as of July 29, 2006 were as follows (in millions):
Fiscal Year Amount
2007 $ 233
2008 159
2009 121
2010 105
2011 91
Thereafter 506
Total $ 1,215
Notes to Consolidated Financial Statements