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Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from
our investments without significantly increasing risk. Some of the securities that we have invested in may be subject to market risk. This means
that a change in prevailing interest rates may cause the fair value of the investments to fluctuate. For example, if we hold a security that was
issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the fair value of our investment may
decline. To minimize this risk, we have historically held many investments until maturity, and as a result, we receive interest and principal
amounts pursuant to the underlying agreements. To further mitigate risk, we maintain our portfolio of investments in a variety of securities. In
general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate.
In addition, we invest in relatively short-term securities and, therefore, changes in short-term interest rates impact the amount of interest
income included in the statements of operations. The effect of a hypothetical one percentage point increase in interest rates would decrease the
value of our investments by less than 1% of their fair value as of December 31, 2004 and 2005. The following table summarizes the amortized
costs and fair value of our cash equivalents and short- and long-term investments by security type as of December 31, 2004 and 2005.
The following table presents the amounts of our cash equivalents and short- and long-term investments that are subject to market risk by
range of expected maturity and weighted-average interest rates as of December 31, 2004 and 2005. This table does not include money market
funds because those funds are not subject to market risk.
*
The maturity of asset-backed, auction rate securities for purposes of this calculation is consistent with management’s view as to the
availability of such securities to fund current operating activities.
60
As of December 31, 2004
As of December 31, 2005
Estimated
Estimated
Amortized
Fair
Amortized
Fair
Cost
Value
Cost
Value
(in thousands)
Government agency notes
$
150,394
$
149,690
$
148,084
$
147,575
Asset
-
backed (including auction rate) securities
117,449
117,406
90,058
90,045
Corporate notes
45,057
44,964
28,514
28,489
Commercial paper
—
—
48,807
48,784
$
312,900
$
312,060
$
315,463
$
314,893
As of December 31, 2004
As of December 31, 2005
Estimated
Estimated
Amortized
Fair
Amortized
Fair
Cost
Value
Cost
Value
(dollars in thousands)
Included in cash and cash equivalents
$
—
$
—
$
66,068
$
66,068
Weighted average interest rate
—
4.3%
Weighted average maturity (mos.)
—
1.2
Included in marketable securities
-
short
-
term
$
254,220
$
253,572
$
208,265
$
207,845
Weighted average interest rate
2.1%
4.0%
Weighted average maturity (mos.)*
3.7
3.9
Included in marketable securities
-
long
-
term
$
58,680
$
58,488
$
41,130
$
40,980
Weighted average interest rate
2.5%
4.2%
Weighted average maturity (mos.)
19.5
22.1