Cisco 2014 Annual Report Download - page 70

Download and view the complete annual report

Please find page 70 of the 2014 Cisco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

Financing Receivables and Guarantees We measure our net balance sheet exposure position related to our financing
receivables and financing guarantees by reducing the total of gross financing receivables and financing guarantees by the
associated allowances for credit loss and deferred revenue. As of July 26, 2014, our net balance sheet exposure position related
to financing receivables and financing guarantees was as follows (in millions):
FINANCING RECEIVABLES FINANCING GUARANTEES
July 26, 2014
Lease
Receivables
Loan
Receivables
Financed
Service
Contracts
and Other Total
Channel
Partner
End-User
Customers Total TOTAL
Financing receivables less unearned income . . $3,527 $1,683 $ 3,210 $ 8,420 $ 263 $ 202 $ 465 $ 8,885
Allowance for credit loss .................. (233) (98) (18) (349) — — — (349)
Deferred revenue ........................ (23) (5) (1,843) (1,871) (127) (166) (293) (2,164)
Net balance sheet exposure ............ $3,271 $1,580 $ 1,349 $ 6,200 $ 136 $ 36 $ 172 $ 6,372
Financing Receivables Financing receivables less unearned income increased by 2% compared with the end of fiscal 2013.
The change was primarily due to a 2% increase in both loan receivables and financed service contracts and other, and also due
to 1% increase in lease receivables. We provide financing to certain end-user customers and channel partners to enable sales of
our products, services, and networking solutions. These financing arrangements include leases, financed service contracts, and
loans. Arrangements related to leases are generally collateralized by a security interest in the underlying assets. Lease
receivables include sales-type and direct-financing leases. We also provide certain qualified customers financing for long-term
service contracts, which primarily relate to technical support services and advanced services. Our loan financing arrangements
may include not only financing the acquisition of our products and services but also providing additional funds for other costs
associated with network installation and integration of our products and services. We expect to continue to expand the use of
our financing programs in the near term.
Financing Guarantees In the normal course of business, third parties may provide financing arrangements to our customers
and channel partners under financing programs. The financing arrangements to customers provided by third parties are related
to leases and loans and typically have terms of up to three years. In some cases, we provide guarantees to third parties for these
lease and loan arrangements. The financing arrangements to channel partners consist of revolving short-term financing
provided by third parties, generally with payment terms ranging from 60 to 90 days. In certain instances, these financing
arrangements result in a transfer of our receivables to the third party. The receivables are derecognized upon transfer, as these
transfers qualify as true sales, and we receive payments for the receivables from the third party based on our standard payment
terms. These financing arrangements facilitate the working capital requirements of the channel partners, and in some cases, we
guarantee a portion of these arrangements. We could be called upon to make payments under these guarantees in the event of
nonpayment by the channel partners or end-user customers. Historically, our payments under these arrangements have been
immaterial. Where we provide a guarantee, we defer the revenue associated with the channel partner and end-user financing
arrangement in accordance with revenue recognition policies, or we record a liability for the fair value of the guarantees. In
either case, the deferred revenue is recognized as revenue when the guarantee is removed.
Deferred Revenue Related to Financing Receivables and Guarantees The majority of the deferred revenue in the preceding
table is related to financed service contracts. The majority of the revenue related to financed service contracts, which primarily
relates to technical support services, is deferred as the revenue related to financed service contracts is recognized ratably over
the period during which the related services are to be performed. A portion of the revenue related to lease and loan receivables
is also deferred and included in deferred product revenue based on revenue recognition criteria not currently having been met.
62