Cisco 2009 Annual Report Download - page 62

Notes to Consolidated Financial Statements
Interest expense and cash paid for interest are summarized as follows (in millions):
Years Ended July 25, 2009 July 26, 2008 July 28, 2007
Interest expense $ 346 $ 319 $ 377
Cash paid for interest $ 333 $ 366 $ 361
(b) Credit Facility
In August 2007, the Company entered into a credit agreement with certain institutional lenders providing for a $3.0 billion unsecured
revolving credit facility that is scheduled to expire on August 17, 2012. Due to the bankruptcy of one of the lenders during the first quarter of
fiscal 2009, the credit facility has been reduced to $2.9 billion.
Any advances under the credit agreement will accrue interest at rates that are equal to, based on certain conditions, either (i) the higher
of the Federal Funds rate plus 0.50% or Bank of America’s “prime rate” as announced from time to time, or (ii) LIBOR plus a margin that is
based on the Company’s senior debt credit ratings as published by Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc.
The credit agreement requires that the Company comply with certain covenants including that it maintains an interest coverage ratio as
defined in the agreement.
As of July 25, 2009, the Company was in compliance with the required interest coverage ratio and the other covenants, and the
Company had not borrowed any funds under the credit facility. The Company may also, upon the agreement of either the then- existing
lenders or of additional lenders not currently parties to the agreement, increase the commitments under the credit facility by up to an
additional $2.0 billion and/or extend the expiration date of the credit facility up to August 15, 2014.
10. Derivative Instruments
(a) Summary of Derivative Instruments
The Company uses derivative instruments primarily to manage exposures to foreign currency exchange rate, interest rate, and equity price
risks. The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes
in foreign currency exchange rates, interest rates, and equity prices. The Company’s derivatives expose it to credit risk to the extent that
the counterparties may be unable to meet the terms of the agreement. The Company does, however, seek to mitigate such risks by limiting
its counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of
credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties.
The fair values of the Company’s derivative instruments and the line items on the Consolidated Balance Sheet to which they were
recorded as of July 25, 2009 are summarized as follows (in millions):
DERIVATIVE ASSETS DERIVATIVE LIABILITIES
Balance Sheet Line Item Fair Value Balance Sheet Line Item Fair Value
Derivatives designated as hedging instruments:
Foreign currency derivatives Prepaid expenses and other current assets $ 87 Other current liabilities $ 36
Total 87 36
Derivatives not designated as hedging
instruments:
Foreign currency derivatives Prepaid expenses and other current assets 22 Other current liabilities 30
Equity derivatives Prepaid expenses and other current assets 2 Other current liabilities —
Equity derivatives Other assets 2 Other long-term liabilities —
Total 26 30
Total $ 113 $ 66
60 Cisco Systems, Inc.