Cisco 2011 Annual Report Download - page 80

Other Commitments
In connection with our business combinations and asset purchases, 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 12 to the Consolidated
Financial Statements.
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 $192 million as of July 30, 2011,
compared with $279 million as of July 31, 2010.
Off-Balance Sheet Arrangements
We consider our investments in unconsolidated variable interest entities to be off-balance sheet arrangements. In
the ordinary course of business, we have investments in privately held companies and provide financing to
certain customers. These privately held companies and customers may be considered to be variable interest
entities. We evaluate on an ongoing basis our investments in these privately held companies and customer
financings and we have determined that as of July 30, 2011 there were no material unconsolidated variable
interest entities.
In fiscal 2010, Cisco and EMC Corporation (“EMC”), together with VMware, Inc. (“VMware”) formed the
Virtual Computing Environment coalition and invested in Acadia Enterprises LLC (“Acadia”), a joint venture
with EMC in which VMware and Intel also invested. During fiscal 2011, the Virtual Computing Environment
coalition and Acadia were combined into a single entity and renamed the Virtual Computing Environment
Company (“VCE”). As of July 30, 2011, our cumulative investment in the combined VCE entity was
approximately $100 million and we owned approximately 35% of the outstanding equity. We account for our
investment in VCE under the equity method, and accordingly our carrying value in VCE has been reduced by
$79 million, which reflects our cumulative share of VCE’s losses primarily in fiscal 2011. Over the next 12
months, as VCE scales its operations, we expect that we will make additional investments in VCE and may incur
additional losses, in proportion to our ownership percentage.
On an ongoing basis, we reassess our investments in privately held companies and customer financings to
determine if they are variable interest entities and if we would be regarded as the primary beneficiary pursuant to
the applicable accounting guidance. As a result of this ongoing assessment, we may be required to make
additional disclosures or consolidate these entities. Because we may not control these entities, we may not have
the ability to influence these events.
We provide financing guarantees, which are generally for various third-party financing arrangements extended to
our channel partners and end-user customers. We could be called upon to make payments under these guarantees
in the event of nonpayment by the channel partners or end-user customers. See the previous discussion of these
financing guarantees under “Financing Receivables and Guarantees.”
Securities Lending
We periodically engage in securities lending activities with certain of our available-for-sale investments. These
transactions are accounted for as a secured lending of the securities, and the securities are typically loaned only
on an overnight basis. The average balance of securities lending for fiscal 2011 and 2010 was $1.6 billion and
$1.5 billion, respectively. We require collateral equal to at least 102% of the fair market value of the loaned
security and that the collateral be in the form of cash or liquid, high-quality assets. We engage in these secured
lending transactions only with highly creditworthy counterparties, and the associated portfolio custodian has
agreed to indemnify us against any collateral losses. As of July 30, 2011 and July 31, 2010, we had no
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