Cisco 2012 Annual Report Download - page 122

payments based on LIBOR plus a fixed number of basis points. The effect of such swaps is to convert the fixed
interest rates of the senior fixed-rate notes to floating interest rates based on LIBOR. The gains and losses related
to changes in the fair value of the interest rate swaps are included in interest expense and substantially offset
changes in the fair value of the hedged portion of the underlying debt that are attributable to the changes in
market interest rates. The fair value of the interest rate swaps was reflected in other assets.
Interest Rate Derivatives Designated as Cash Flow Hedge, Long-Term Debt In fiscal 2010, the Company entered
into contracts related to interest rate derivatives designated as cash flow hedges, with an aggregate notional
amount of $3.7 billion, to hedge against interest rate movements in connection with its anticipated issuance of
senior notes. These derivative instruments were settled in connection with the actual issuance of the senior notes.
The effective portion of these hedges was recorded to AOCI, net of tax, and is being amortized to interest
expense over the respective lives of the notes.
(d) Equity Price Risk
The Company may hold equity securities for strategic purposes or to diversify its overall investment portfolio. The
publicly traded equity securities in the Company’s portfolio are subject to price risk. To manage its exposure to
changes in the fair value of certain equity securities, the Company may enter into equity derivatives that are
designated as fair value hedges. The changes in the value of the hedging instruments are included in other income,
net, and offset the change in the fair value of the underlying hedged investment. In addition, the Company
periodically manages the risk of its investment portfolio by entering into equity derivatives that are not designated
as accounting hedges. The changes in the fair value of these derivatives are also included in other income, net.
The Company is also exposed to variability in compensation charges related to certain deferred
compensation obligations to employees. Although not designated as accounting hedges, the Company utilizes
derivatives such as total return swaps to economically hedge this exposure.
(e) Credit-Risk-Related Contingent Features
Certain derivative instruments are executed under agreements that have provisions requiring the Company and
the counterparty to maintain a specified credit rating from certain credit rating agencies. If the Company’s or the
counterparty’s credit-rating falls below a specified credit rating, either party has the right to request collateral on
the derivatives’ net liability position. Such provisions did not affect the Company’s financial position as of
July 28, 2012 and July 30, 2011.
12. Commitments and Contingencies
(a) Operating Leases
The Company leases office space in many U.S. locations. Outside the United States, larger leased sites include
sites in Australia, Belgium, China, Germany, India, Israel, Italy, Japan, Norway, and the United Kingdom. Rent
expense for office space and equipment totaled $404 million, $428 million, and $364 million in fiscal 2012,
2011, and 2010, respectively. The Company also leases equipment and vehicles. Future minimum lease payments
under all noncancelable operating leases with an initial term in excess of one year as of July 28, 2012 are as
follows (in millions):
Fiscal Year Amount
2013 .............................................. $ 328
2014 .............................................. 243
2015 .............................................. 199
2016 .............................................. 97
2017 .............................................. 70
Thereafter .......................................... 202
Total .......................................... $1,139
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