Cisco 2015 Annual Report Download - page 113

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(g) Collateral and Credit-Risk-Related Contingent Features
For certain derivative instruments, the Company and its counterparties have entered into arrangements requiring the party that is
in a liability position from a mark-to-market standpoint to post cash collateral to the other party. See further discussion under
“(b) Offsetting of Derivative Instruments” above.
In addition, 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. Under such agreements, 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. The fair market value of these derivatives that are in a net liability position as of July 25, 2015
and July 26, 2014 were $0 million and $3 million, respectively.
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,
Canada, China, France, Germany, India, Israel, Japan, Poland 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 25, 2015 are as follows (in millions):
Fiscal Year Amount
2016 ....................................................................................................... $ 346
2017 ....................................................................................................... 254
2018 ....................................................................................................... 181
2019 ....................................................................................................... 99
2020 ....................................................................................................... 79
Thereafter ................................................................................................. 183
Total .................................................................................................. $ 1,142
Rent expense for office space and equipment totaled $394 million, $413 million, and $416 million in fiscal 2015, 2014, and 2013,
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 25, 2015 and July 26, 2014, the Company had total purchase commitments for inventory of $4,078 million and
$4,169 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 25, 2015 and
July 26, 2014, the liability for these purchase commitments was $156 million and $162 million, respectively, and was included in
other current liabilities.
(c) Other Commitments
In connection with the Company’s business combinations, the Company has agreed to pay certain additional amounts contingent
upon the achievement of certain agreed-upon technology, development, product, or other milestones or upon the continued
employment with the Company of certain employees of the acquired entities.
The following table summarizes the compensation expense related to acquisitions (in millions):
July 25, 2015 July 26, 2014 July 27, 2013
Compensation expense related to acquisitions ............................ $ 334 $ 607 $ 123
105