Cisco 2008 Annual Report Download - page 36

2008 Annual Report 41
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, excess tax benefits from share-based compensation, 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 table summarizes our contractual obligations at July 26, 2008 (in millions):
PAYMENTS DUE BY PERIOD
Total
Less than
1 Year
1 to 3
Years
3 to 5
Years
More than
5 YearsJuly 26, 2008
Operating leases $ 1,577 $ 298 $ 431 $ 271 $ 577
Purchase commitments with contract manufacturers and suppliers 2,727 2,727 — — —
Purchase obligations 1,902 1,140 377 228 157
Long-term debt 6,504 500 3,002 2 3,000
Other long-term liabilities 589 — 350 39 200
Total by period $ 13,299 $ 4,665 $ 4,160 $ 540 $ 3,934
Other long-term liabilities 829
Total $ 14,128
Operating Leases We lease office space in several U.S. locations. Outside the United States, larger leased sites include sites in Australia,
Belgium, Canada, China, France, Germany, India, Israel, Italy, Japan, and the United Kingdom. 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. We record a liability for firm, noncancelable, and unconditional
purchase commitments for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete
inventory. As of July 26, 2008, the liability for these purchase commitments was $184 million and is recorded in other current liabilities and
is 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.
Long-Term Debt The amount of long-term debt in the preceding table represents the principal amount of the respective debt instruments
including the current portion of long-term debt. See Note 8 to the Consolidated Financial Statements.
Other Long-Term Liabilities Other long-term liabilities include noncurrent income taxes payable, accrued liabilities for deferred compensation
and defined benefit plans, noncurrent deferred tax liabilities, and certain other long-term liabilities. Noncurrent income taxes payable of
$749 million and noncurrent deferred tax liabilities of $80 million have been included only in the total column in the preceding table due to
uncertainty regarding the timing of future payments. Noncurrent income taxes payable includes uncertain tax positions (see Note 13 to the
Consolidated Financial Statements) partially offset by payments and certain other items.
Compensation Expense Related to Acquisitions and Investments
In connection with our purchase acquisitions, asset purchases, and acquisitions of variable interest entities, we have agreed to pay certain
additional amounts contingent upon the achievement of agreed-upon technology, development, product, or other milestones, or continued
employment with us of certain employees of acquired entities. See Note 3 to the Consolidated Financial Statements.
Other Commitments
We also have certain funding commitments primarily related to our investments in privately held companies and venture funds, some of
which are based on the achievement of certain agreed-upon milestones, and some of which are required to be funded on demand. The
funding commitments were approximately $359 million as of July 26, 2008, compared with approximately $140 million as of July 28, 2007.