3Ware 2003 Annual Report Download - page 47

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Item 7A. Market Risk.
We maintain an investment portfolio of various holdings, types and maturities. These securities are
classified as available-for-sale and, consequently, are recorded on the consolidated balance sheets at fair value
with unrealized gains or losses reported as a separate component of accumulated other comprehensive income.
We invest our excess cash in debt instruments of the U.S. Treasury, corporate bonds, mortgage-backed securities
and closed-end bond funds with investment grade credit ratings as specified in our investment policy. We have
also established guidelines relative to diversification and maturities that attempt to maintain safety and liquidity.
These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.
We have not used derivative financial instruments.
Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign
currency exchange rates, interest rates and a decline in the stock market. We do not currently hold any derivative
instruments. We are exposed to market risks related to changes in interest rates and foreign currency exchange
rates.
We are also exposed to market risk as it relates to changes in the market value of our investments. At
March 31, 2003, our investment portfolio included fixed-income securities classified as available-for-sale
investments with a fair market value of $885.6 million and a cost basis of $876.8 million. These securities are
subject to interest rate risk, as well as credit risk, and will decline in value if interest rates increase or an issuer’s
credit rating or financial condition is decreased. The following table presents the hypothetical changes in fair
value of our short-term investments held at March 31, 2003 (in thousands):
Valuation of Securities Given an
Interest Rate Decrease of
X Basis Points
Fair
Value as
of
March 31,
2003
Valuation of Securities Given an
Interest Rate Increase of
X Basis Points
(150 BPS) (100 BPS) (50 BPS) (50 BPS) (100 BPS) (150 BPS)
Available-for-sale investments .... $937,915 $919,732 $902,382 $885,584 $869,569 $854,537 $840,249
These instruments are not leveraged. The modeling technique used measures the change in fair market value
arising from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel
shifts in the yield curve of plus or minus 50 basis points, 100 basis points, and 150 basis points.
We invest in equity instruments of private companies for business and strategic purposes. These investments
are valued based on our historical cost, less any recognized impairments. The estimated fair values are not
necessarily representative of the amounts that we could realize in a current transaction.
We generally conduct business, including sales to foreign customers, in U.S. dollars, and as a result, we
have limited foreign currency exchange rate risk. The effect of an immediate 10 percent change in foreign
exchange rates would not have a material impact on our financial condition or results of operations.
Item 8. Financial Statements and Supplementary Data.
Refer to the Index to Financial Statements on Page F-l and the Quarterly Comparisons included in Item 6 of
this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
42