Cisco 2013 Annual Report Download - page 114

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(f) 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 27, 2013 and July 28, 2012.
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
Belgium, China, France, Germany, India, Israel, Italy, Japan, Norway, and the United Kingdom. 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 27, 2013 are as follows (in millions):
Fiscal Year Amount
2014 ......................................................... $ 367
2015 ......................................................... 289
2016 ......................................................... 150
2017 ......................................................... 92
2018 ......................................................... 68
Thereafter ..................................................... 183
Total ..................................................... $1,149
Rent expense for office space and equipment totaled $416 million, $404 million, and $428 million in fiscal 2013, 2012, and
2011, respectively.
(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 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 27, 2013 and July 28, 2012, the Company had total purchase commitments for inventory of
$4,033 million and $3,869 million, 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 27, 2013
and July 28, 2012, the liability for these purchase commitments was $172 million and $193 million, respectively, and was
included in other current liabilities.
(c) Other Commitments
In connection with the Company’s business combinations and asset purchases, 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 the acquired entities. The Company recognized such
compensation expense of $123 million, $50 million, and $127 million during fiscal 2013, 2012, and 2011, respectively. As of
July 27, 2013, the Company estimated that future compensation expense and contingent consideration of up to $1.2 billion may
be required to be recognized pursuant to the applicable business combination and asset purchase agreements, which included a
maximum potential $863 million in milestone payments related to Insieme as more fully discussed in the subsection entitled
“Insieme Networks, Inc.” within section (d) immediately below.
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 $263 million and $120 million as of July 27, 2013 and July 28, 2012,
respectively.
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