Cisco 2014 Annual Report Download - page 114

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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 26,
2014 was $3 million. There was no such balance as of July 27, 2013.
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 China,
France, Germany, India, Israel, Italy, Japan, Netherlands, 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 26, 2014 are as follows (in millions):
Fiscal Year Amount
2015 ......................................................... $ 399
2016 ......................................................... 277
2017 ......................................................... 180
2018 ......................................................... 131
2019 ......................................................... 65
Thereafter ..................................................... 187
Total ..................................................... $1,239
Rent expense for office space and equipment totaled $413 million, $416 million, and $404 million in fiscal 2014, 2013, and
2012, 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 26, 2014 and July 27, 2013, the Company had total purchase commitments for inventory of
$4,169 million and $4,033 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 26, 2014
and July 27, 2013, the liability for these purchase commitments was $162 million and $172 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 26, 2014 July 27, 2013 July 28, 2012
Compensation expense related to acquisitions .............. $607 $123 $50
106