Cisco 2008 Annual Report Download - page 64

2008 Annual Report 69
Notes to Consolidated Financial Statements
10. Commitments and Contingencies
(a) Operating Leases
The Company leases 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. Rent expense totaled $291 million, $219 million, and
$181 million in fiscal 2008, 2007, and 2006, respectively. Future annual minimum lease payments under all noncancelable operating leases
with an initial term in excess of one year as of July 26, 2008 are as follows (in millions):
Fiscal Year Amount
2009 $ 298
2010 238
2011 193
2012 143
2013 128
Thereafter 577
Total $ 1,577
(b) Purchase Commitments with Contract Manufacturers and Suppliers
The Company purchases components from a variety of suppliers and uses several contract manufacturers to provide manufacturing
services for its products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate
component supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure
inventory based upon criteria as defined by the Company or that establish the parameters defining the Company’s requirements. In certain
instances, these agreements allow the Company the option to cancel, reschedule, and adjust the Company’s requirements based on its
business needs prior to firm orders being placed. Consequently, only a portion of the Company’s reported purchase commitments arising
from these agreements are firm, noncancelable, and unconditional commitments. As of July 26, 2008 and July 28, 2007, the Company had
total purchase commitments for inventory of $2.7 billion and $2.6 billion, respectively.
In addition to the above, the Company records a liability for firm, noncancelable, and unconditional purchase commitments for
quantities in excess of its future demand forecasts consistent with the valuation of the Company’s excess and obsolete inventory. As of
July 26, 2008 and July 28, 2007, the liability for these purchase commitments was $184 million and $168 million, respectively, and was
included in other current liabilities.
(c) Compensation Expense Related to Acquisitions and Investments
In connection with the Company’s purchase acquisitions, asset purchases, and acquisitions of variable interest entities, the Company has
agreed to pay certain additional amounts contingent upon the achievement of certain agreed-upon technology, development, product, or
other milestones, or the continued employment with the Company of certain employees of acquired entities. See Note 3.
(d) Other Commitments
The Company also has certain funding commitments primarily related to its 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 and $140 million as of July 26, 2008 and July 28, 2007, respectively.
(e) Variable Interest Entities
In the ordinary course of business, the Company has investments in privately held companies and provides financing to certain
customers through its wholly owned subsidiaries, which may be considered to be variable interest entities. The Company has evaluated
its investments in these privately held companies and customer financings and determined that there were no significant unconsolidated
variable interest entities as of July 26, 2008.