Cisco 2009 Annual Report Download - page 65

Notes to Consolidated Financial Statements
11. 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,
China, France, Germany, India, Israel, Italy, Japan, and the United Kingdom. The Company also leases equipment and vehicles. Rent
expense totaled $328 million, $291 million, and $219 million in fiscal 2009, 2008, and 2007, respectively. Future annual minimum lease
payments under all noncancelable operating leases with an initial term in excess of one year as of July 25, 2009 are as follows (in millions):
Fiscal Year Amount
2010 $ 345
2011 249
2012 177
2013 132
2014 103
Thereafter 420
Total $ 1,426
(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. A
significant portion of the Company’s reported purchase commitments arising from these agreements consists of firm, noncancelable, and
unconditional commitments. 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. As of July 25, 2009 and July 26, 2008, the
Company had total purchase commitments for inventory of $2.2 billion and $2.7 billion, respectively.
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 25, 2009 and July 26, 2008, the
liability for these purchase commitments was $175 million and $184 million, respectively, and was included in other current liabilities.
(c) Other Commitments
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.
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 $313 million and $359 million as of July 25, 2009 and July 26, 2008, respectively.
(d) Variable Interest Entities
In the ordinary course of business, the Company has investments in privately held companies and provides financing to certain customers.
These privately held companies and customers may be considered to be variable interest entities. The Company has evaluated its
investments in these privately held companies and its customer financings and has determined that there were no significant
unconsolidated variable interest entities as of July 25, 2009.
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