3Ware 2004 Annual Report Download - page 63

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Item 7A. Quantitative and Qualitative Disclosure about 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 and asset
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 interest rate
trends. 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 are exposed to market risks related
to changes in interest rates and foreign currency exchange rates.
We are exposed to market risk as it relates to changes in the market value of our investments. At March 31,
2004, our investment portfolio included fixed-income securities classified as available-for-sale investments with
afair market value of $531.9 million and a cost basis of $526.6 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, 2004 (in thousands):
Valuation of Securities Given an
Interest Rate Decrease of
XBasis Points
Fair
Value as
of
March 31,
2004
Valuation of Securities Given an
Interest Rate Increase of
XBasis Points
(150 BPS) (100 BPS) (50 BPS) (50 BPS) (100 BPS) (150 BPS)
Available-for-sale
investments ........... $570,605 $557,261 $544,157 $531,879 $520,198 $509,488 $499,540
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.
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