Cisco 2015 Annual Report Download - page 75

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.
Interest Rate Risk
Fixed Income Securities We maintain an investment portfolio of various holdings, types, and maturities. Our primary objective
for holding fixed income securities 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
fixed income investment portfolio. Conversely, declines in interest rates, 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 fixed income
securities as of July 25, 2015. Our fixed income investments are held for purposes other than trading. Our fixed income
investments are not leveraged as of July 25, 2015. We monitor our interest rate and credit risks, including our credit exposures to
specific rating categories and to individual issuers. As of July 25, 2015, approximately 65% of our fixed income securities
balance consisted of U.S. government and U.S. government agency securities. We believe the overall credit quality of our
portfolio is strong.
The following tables present the hypothetical fair values of our fixed income securities, 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. Due to
the low interest rate environment at the end of each of fiscal 2015 and fiscal 2014, we did not believe a parallel shift of minus
100 BPS or minus 150 BPS was relevant. The hypothetical fair values as of July 25, 2015 and July 26, 2014 are as follows (in
millions):
VALUATION OF SECURITIES
GIVEN AN INTEREST RATE
DECREASE OF X BASIS POINTS FAIR VALUE
AS OF
JULY 25, 2015
VALUATION OF SECURITIES
GIVEN AN INTEREST RATE
INCREASE OF X BASIS POINTS
(150 BPS) (100 BPS) (50 BPS) 50 BPS 100 BPS 150 BPS
Fixed income securities ...... N/A N/A $52,366 $51,974 $51,582 $51,189 $50,797
VALUATION OF SECURITIES
GIVEN AN INTEREST RATE
DECREASE OF X BASIS POINTS FAIR VALUE
AS OF
JULY 26, 2014
VALUATION OF SECURITIES
GIVEN AN INTEREST RATE
INCREASE OF X BASIS POINTS
(150 BPS) (100 BPS) (50 BPS) 50 BPS 100 BPS 150 BPS
Fixed income securities ...... N/A N/A $43,721 $43,396 $43,071 $42,747 $42,422
Financing Receivables As of July 25, 2015, our financing receivables had a carrying value of $8.3 billion, compared with
$8.1 billion as of July 26, 2014. As of July 25, 2015, 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 25, 2015, we had $25.3 billion in principal amount of senior notes outstanding, which consisted of $3.3 billion
floating-rate notes and $22.0 billion fixed-rate notes. The carrying amount of the senior notes was $25.4 billion, and the related
fair value based on market prices was $26.6 billion. As of July 25, 2015, a hypothetical 50 BPS increase or decrease in market
interest rates would change the fair value of the fixed-rate debt, excluding the $11.4 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.
67