cisco-annual-report-2021

13. Derivative Instruments
(a)
Summary of Derivative Instruments
We use derivative instruments primarily to manage exposures to foreign currency exchange rate, interest rate, and equity price
risks. Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes
in foreign currency exchange rates, interest rates, and equity prices. Our derivatives expose us to credit risk to the extent that
the counterparties may be unable to meet the terms of the agreement. We do, however, seek to mitigate such risks by limiting
our counterparties to major financial institutions and requiring collateral in certain cases. In addition, the potential risk of loss
with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as
a result of defaults by counterparties.
The fair values of our derivative instruments and the line items on the Consolidated Balance Sheets to which they were recorded
are summarized as follows (in millions):
DERIVATIVE ASSETS
July 31,
Balance Sheet Line Item 2021
DERIVATIVE LIABILITIES
July 25,
2020 Balance Sheet Line Item
July 31,
2021
Derivatives designated as hedging instruments:
Foreign currency derivatives . . . . . . . . . . . . . . . . . . . . Other current assets $ 14 $ 7 Other current liabilities $ 3 $ 2
Foreign currency derivatives . . . . . . . . . . . . . . . . . . . . Other assets 1 — Other long-term liabilities — —
Interest rate derivatives . . . . . . . . . . . . . . . . . . . . . . . . Other current assets 9 6 Other current liabilities — —
Interest rate derivatives . . . . . . . . . . . . . . . . . . . . . . . . Other assets 99 169 Other long-term liabilities — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 182 3 2
Derivatives not designated as hedging instruments:
Foreign currency derivatives . . . . . . . . . . . . . . . . . . . . Other current assets 3 8 Other current liabilities 16 8
Foreign currency derivatives . . . . . . . . . . . . . . . . . . . . Other assets — — Other long-term liabilities 1 —
Equity derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets — 1 Other long-term liabilities — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9 17 8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 126 $ 191 $ 20 $ 10
The following amounts were recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for our fair
value hedges (in millions):
CARRYING AMOUNT OF THE
HEDGED ASSETS/
(LIABILITIES)
July 25,
2020
CUMULATIVE AMOUNT OF
FAIR VALUE HEDGING
ADJUSTMENT INCLUDED IN
THE CARRYING AMOUNT OF
THE HEDGED ASSETS/
LIABILITIES
Balance Sheet Line Item of Hedged Item July 31, 2021 July 25, 2020 July 31, 2021 July 25, 2020
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (508) $ (506) $ (9) $ (6)
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,594) $ (2,159) $ (97) $ (165)
The effect of derivative instruments designated as fair value hedges, recognized in interest and other income (loss), net is
summarized as follows (in millions):
GAINS (LOSSES) FOR
THE YEARS ENDED
July 31, 2021 July 25, 2020 July 27, 2019
Interest rate derivatives:
Hedged items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65 $ (98) $ (138)
Derivatives designated as hedging instruments . . . . . . . . . . . . . . . . . . . . . . . . (67) 101 145
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2) $ 3 $ 7
83