cisco-annual-report-2021

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Our financial position is exposed to a variety of risks, including interest rate risk, equity price risk, and foreign currency
exchange risk. We have seen an increase in these risks and related uncertainties with increased volatility in the financial markets
in the current environment with the COVID-19 pandemic.
Interest Rate Risk
Available-for-Sale Debt Investments We maintain an investment portfolio of various holdings, types, and maturities. Our
primary objective for holding available-for-sale debt investments is to achieve an appropriate investment return consistent
with preserving principal and managing risk. At any time, a sharp rise in market interest rates could have a material adverse
impact on the fair value of our available-for-sale debt investment portfolio. Conversely, declines in interest rates as has also
happened recently, including the impact from lower credit spreads, could have a material adverse impact on interest income for
our investment portfolio. We may utilize derivative instruments designated as hedging instruments to achieve our investment
objectives. We had no outstanding hedging instruments for our available-for-sale debt investments as of July 31, 2021. Our
available-for-sale debt investments are held for purposes other than trading. Our available-for-sale debt investments are not
leveraged as of July 31, 2021. We monitor our interest rate and credit risks, including our credit exposures to specific rating
categories and to individual issuers. We believe the overall credit quality of our portfolio is strong.
The following tables present the hypothetical fair values of our available-for-sale debt investments, including the hedging effects
when applicable, as a result of selected potential market decreases and increases in interest rates. The market changes reflect
immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (BPS), plus 100 BPS, and plus 150 BPS.
The hypothetical fair values as of July 31, 2021 and July 25, 2020 are as follows (in millions):
VALUATION OF SECURITIES
GIVEN AN INTEREST RATE
DECREASE OF X BASIS POINTS
FAIR VALUE
AS OF
VALUATION OF SECURITIES
GIVEN AN INTEREST RATE
INCREASE OF X BASIS POINTS
(150 BPS) (100 BPS) (50 BPS) JULY 31, 2021 50 BPS 100 BPS 150 BPS
Available-for-sale debt investments . . . $15,537 $15,427 $15,317 $15,206 $15,096 $14,986 $14,875
VALUATION OF SECURITIES
GIVEN AN INTEREST RATE
DECREASE OF X BASIS POINTS
FAIR VALUE
AS OF
VALUATION OF SECURITIES
GIVEN AN INTEREST RATE
INCREASE OF X BASIS POINTS
(150 BPS) (100 BPS) (50 BPS) JULY 25, 2020 50 BPS 100 BPS 150 BPS
Available-for-sale debt investments . . . $17,877 $17,788 $17,699 $17,610 $17,522 $17,433 $17,344
Financing Receivables As of July 31, 2021, our financing receivables had a carrying value of $9.3 billion, compared with $10.8
billion as of July 25, 2020. As of July 31, 2021, a hypothetical 50 BPS increase or decrease in market interest rates would change
the fair value of our financing receivables by a decrease or increase of approximately $0.1 billion, respectively.
Debt As of July 31, 2021, we had $11.5 billion in principal amount of senior fixed-rate notes outstanding. The carrying amount
of the senior notes was $11.5 billion, and the related fair value based on market prices was $13.7 billion. As of July 31, 2021, a
hypothetical 50 BPS increase or decrease in market interest rates would change the fair value of the fixed-rate debt, excluding
the $2.0 billion of hedged debt, by a decrease or increase of approximately $0.4 billion, respectively. However, this hypothetical
change in interest rates would not impact the interest expense on the fixed-rate debt that is not hedged.
Equity Price Risk
Marketable Equity Investments The fair value of our marketable equity investments is subject to market price volatility. We
hold equity securities for strategic purposes or to diversify our overall investment portfolio. These equity securities are held
for purposes other than trading. As of July 31, 2021, the total fair value of our investments in marketable equity securities was
$137 million. We had no outstanding marketable equity securities as of July 25, 2020.
Privately Held Investments These investments are recorded in other assets in our Consolidated Balance Sheets. As of July 31,
2021, the total carrying amount of our investments in privately held investments was $1.5 billion, compared with $1.3 billion
at July 25, 2020. Some of these companies in which we invested are in the startup or development stages. These investments
are inherently risky because the markets for the technologies or products these companies are developing are typically in the
early stages and may never materialize. We could lose our entire investment in these companies. Our evaluation of privately
held investments is based on the fundamentals of the businesses invested in, including, among other factors, the nature of their
technologies and potential for financial return.
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