(d) Inventories Inventories are stated at the lower of cost or market. Our security solutions and services are designed to protect customers from the network to the cloud to the endpoint, through a network-integrated architecture. There can be no assurance that our patents and other proprietary rights will not be challenged, invalidated, or circumvented; that others will not assert intellectual property rights to technologies that are relevant to us; or that our rights will give us a competitive advantage. In USD thousands. The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. As of July 26, 2014 , the Company estimated that future cash compensation expense of up to $574 million may be required to be recognized pursuant to the applicable business combination agreements, which included the remaining potential compensation expense related to Insieme Networks, Inc., as more fully discussed immediately below. The ineffective portion, if any, of the gain or loss is reported in earnings immediately. 2 Cisco 2014 Annual Security Report. Free Cash Flow and Capital Allocation As part of our capital allocation strategy, we intend to return a minimum of 50% of our free cash flow annually to our shareholders through cash dividends and repurchases of common stock. For example, sales in several of our emerging countries decreased in recent periods, including fiscal 2014, and we expect that this weakness will continue for at least several quarters. Distributor inventory and deferred cost of sales are related to unrecognized revenue on shipments to distributors and retail partners as well as shipments to customers. ACI is Cisco's vision for the next generation of networking, in which networks are fully responsive to the applications that are driving our economy. For fiscal 2013 , as compared with fiscal 2012 , product revenue in the EMEA segment was flat, as growth in the commercial, service provider and public sector markets was offset by a decline in the enterprise market. Some of the privately held companies in which we invested are in the startup or development stages. Also certain of our suppliers and logistics centers are located in regions that have or may be affected by earthquake, tsunami and flooding activity which in the past has disrupted, and in the future could disrupt, the flow of components and delivery of products. The Company acquired privately held Intucell, Ltd. ("Intucell") in the third quarter of fiscal 2013. The credit agreement requires that we comply with certain covenants, including that we maintain an interest coverage ratio as defined in the agreement. Other Variable Interest Entities In the ordinary course of business, the Company has investments in other privately held companies and provides financing to certain customers. (v) Use of Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. We conduct business globally in numerous currencies. Change in operating assets and liabilities, net of effects of acquisitions and divestitures: Net cash provided by operating activities, Acquisition of businesses, net of cash and cash equivalents acquired, Purchases of investments in privately held companies, Return of investments in privately held companies, Proceeds from sales of property and equipment, Repurchases of common stock - repurchase program, Shares repurchased for tax withholdings on vesting of restricted stock units, Short-term borrowings, original maturities less than 90 days, net, Net decrease in cash and cash equivalents, Cash and cash equivalents, beginning of fiscal year, Cash and cash equivalents, end of fiscal year. For example, in the past, many of our service provider customers have been materially and adversely affected by slowdowns in the general economy, by overcapacity, by changes in the service provider market, by regulatory developments, and by constraints on capital availability, resulting in business failures and substantial reductions in spending and expansion plans. The provision for income taxes consists of the following (in millions): Income before provision for income taxes consists of the following (in millions): The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes consist of the following: During fiscal 2013, the Internal Revenue Service (IRS) and the Company settled all outstanding items related to the audit of the Company's federal income tax returns for the fiscal years ended July 27, 2002 through July 28, 2007. Our security products, where we are seeing strong momentum as we integrate our recently acquired Sourcefire, Inc. ("Sourcefire") portfolio into an integrated security architecture, Our collaboration products, where we have recently introduced an entirely new portfolio of products designed to deliver a much richer experience at much lower price points. As to specific products, we offer a broad range of hardware and software solutions, from core network infrastructure and mobile network routing solutions for service providers and enterprises to access routers for branch offices and for telecommuters and consumers at home. The initial feedback we have received from customers on ACI has been extremely positive, and the momentum is strong. In December 2011, the Financial Accounting Standards Board (FASB) issued an accounting standard update requiring enhanced disclosures about certain financial instruments and derivative instruments that are offset in the statement of financial position or that are subject to enforceable master netting arrangements or similar agreements. We welcome the re-use, republication, and distribution of "The Newsroom" content. The following table summarizes the Company's short-term debt (in millions, except percentages): In fiscal 2011, the Company established a short-term debt financing program of up to $3.0 billion through the issuance of commercial paper notes. The graph tracks the performance of a $100 investment in the Company's common stock and in each of the indexes (with the reinvestment of all dividends) on the date specified. The Company records derivative instruments in the statements of cash flows to operating, investing, or financing activities consistent with the cash flows of the hedged item. The dividend yield assumption is based on the history and expectation of dividend payouts at the grant date. Interest is payable quarterly on the floating-rate notes. During periods of shortages or delays the price of components may increase, or the components may not be available at all, and we may also encounter shortages if we do not accurately anticipate our needs. Cisco acquired Assemblage, a company that provides tools and infrastructure designed to enable simple, one-click browser-to-browser collaboration without the need for downloads, plugins or installations. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were regularly sold on a standalone basis. Found insideMike Hower, “Timberland Retreads Old Tires as New Shoes," GreenBiz, accessed November 3, 2014, ... Alfa Lavel, "Annual Report 2013," accessed March 3, 2014, ... Cisco, “2014 Corporate Social Responsibility Report. These smaller companies within the commercial market are primarily served by our channel partners. In certain instances, these financing arrangements result in a transfer of the Company's receivables to the third party. This could result in competitors, some of which may also be our strategic alliance partners, providing those solutions before we do and loss of market share, revenue, and earnings. San Jose, CA 95134-170 USA. We also face competition from customers to which we license or supply technology and suppliers from which we transfer technology. 2020 Annual Report. The increase in sales of our Service Provider Video infrastructure products was primarily due to increased sales of set-top boxes. The Company invested $185 million in VCE during fiscal 2014 , $93 million during fiscal 2013 , and $276 million during fiscal 2012 . The following table summarizes the maturities of the Company's fixed income securities at July 26, 2014 (in millions): Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations. For revenue and other information regarding these segments, see Note 17 to the Consolidated Financial Statements. The Company has included revenue from the NDS acquisition, subsequent to the acquisition date, in its Service Provider Video product category. Our future results could be materially adversely affected by a variety of political, economic or other factors relating to our operations inside and outside the United States, including impacts from the U.S. federal budget including the effect of the sequestration beginning in 2013; global central bank monetary policy; issues related to the political relationship between the United States and other countries which can affect the willingness of customers in those countries to purchase products from companies headquartered in the United States; and the challenging and inconsistent global macroeconomic environment, any or all of which could have a material adverse effect on our operating results and financial condition, including, among others, the following: Economic instability or weakness or natural disasters in a specific country or region; environmental and trade protection measures and other legal and regulatory requirements, some of which may affect our ability to import our products, to export our products from, or sell our products in various countries, Political considerations that affect service provider and government spending patterns, Health or similar issues, such as a pandemic or epidemic, Difficulties in staffing and managing international operations, Adverse tax consequences, including imposition of withholding or other taxes on our global operations, WE ARE EXPOSED TO THE CREDIT RISK OF SOME OF OUR CUSTOMERS AND TO CREDIT EXPOSURES IN WEAKENED MARKETS, WHICH COULD RESULT IN MATERIAL LOSSES. They take advantage of users trust in systems, applications, and the people and businesses they interact with on a regular basis. 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. In January 2004, Ms. Christie was promoted to Vice President, Investor Relations. Share-based awards are designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company. For example, a customer may purchase routing products along with a contract for technical support services. Over the last few years, we have been working to transform our business to move from selling individual products and services to selling products and services integrated into architectures and solutions, as well as to meet customers' business outcomes. Prior acquisitions have resulted in a wide range of outcomes, from successful introduction of new products and technologies to an inability to do so. A few examples of new service offerings include security services, cloud and managed services and consulting services. Mergers and acquisitions of high-technology companies are inherently risky and subject to many factors outside of our control, and no assurance can be given that our previous or future acquisitions will be successful and will not materially adversely affect our business, operating results, or financial condition. Commencement of the Company 's service category by accruals of U.S. income taxes the significant policies... 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