NVIDIA 2008 Annual Report Download - page 64

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investment and Interest Rate Risk
As of January 25, 2009 and January 27, 2008, we had $1.26 billion and $1.81 billion, respectively, in cash, cash equivalents and marketable securities. We
invest in a variety of financial instruments, consisting principally of cash and cash equivalents, asset
- backed securities, commercial paper, mortgage - backed
securities issued by Government
- sponsored enterprises, equity securities, money market funds and debt securities of corporations, municipalities and the United
States government and its agencies. As of January 25, 2009, we did not have any investments in auction
- rate preferred securities. Our investments are
denominated in United States dollars.
We account for our investment instruments in accordance with Statement of Financial Accounting Standards No. 115, or SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. All of the cash equivalents and marketable securities are treated as “available
- for - sale” under SFAS No. 115.
Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their market value
adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these
factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value of our publicly traded debt or
equity investments is judged to be other
- than - temporary. We may suffer losses in principal if we are forced to sell securities that decline in securities market value
due to changes in interest rates. However, because any debt securities we hold are classified as “available
- for - sale,” no gains or losses are realized in our
Consolidated Statements of Operations due to changes in interest rates unless such securities are sold prior to maturity or unless declines in value are determined
to be other
- than - temporary. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive
income (loss), a component of stockholders
’ equity, net of tax.
As of January 25, 2009, we performed a sensitivity analysis on our floating and fixed rate financial investments. According to our analysis, parallel shifts in
the yield curve of both plus or minus 0.5% would result in changes in fair market values for these investments of approximately $4.4 million.
The current financial turmoil affecting the banking system and financial markets and the possibility that financial institutions may consolidate or go out of
business have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit, currency
and equity markets. There could be a number of follow
- on effects from the credit crisis on our business, including insolvency of key suppliers resulting in product
delays; inability of customers, including channel partners, to obtain credit to finance purchases of our products and/or customer, including channel partner,
insolvencies; and failure of financial institutions, which may negatively impact our treasury operations. Other income and expense could also vary materially from
expectations depending on gains or losses realized on the sale or exchange of financial instruments; impairment charges related to debt securities as well as equity
and other investments; interest rates; and cash, cash equivalent and marketable securities balances. The current volatility in the financial markets and overall
economic uncertainty increases the risk that the actual amounts realized in the future on our financial instruments could differ significantly from the fair values
currently assigned to them. For instance, we recorded other than temporary impairment charges of $9.9 million during fiscal year 2009. These charges include $5.6
million related to what we believe is an other than temporary impairment of our investment in the money market funds held by the Reserve International Liquidity
Fund, Ltd., or International Reserve Fund; $2.5 million related to a decline in the value of publicly traded equity securities and $1.8 million related to debt securities
held by us that were issued by companies that have filed for bankruptcy as of January 25, 2009. Please refer to Note 17 of the Notes to the Consolidated Financial
Statements in Part IV, Item 15 of this Form 10
- K for further details. As of January 25, 2009, our investments in government agencies and government sponsored
enterprises represented approximately 71% of our total investment portfolio, while the financial sector accounted for approximately 17% of our total investment
portfolio. Substantially all of our investments are with A/A2 or better rated securities with the substantial majority of the securities rated AA
- /Aa3 or better. If the
fair value of our investments in these sectors was to decline by 2%
- 5%, it would result in changes in fair market values for these investments by approximately
$25 - $63 million.
Exchange Rate Risk
We consider our direct exposure to foreign exchange rate fluctuations to be minimal. Gains or losses from foreign currency remeasurement are included in
“Other income (expense), net” in our Consolidated Financial Statements and to date have not been significant. The impact of foreign currency transaction loss
included in determining net income (loss) for fiscal years 2009, 2008 and 2007 was $2.0 million, $1.7 million and $0.5 million, respectively. Currently, sales and
arrangements with third
- party manufacturers provide for pricing and payment in United States dollars, and, therefore, are not subject to exchange rate fluctuations.
Increases in the value of the United States
’ dollar relative to other currencies would make our products more expensive, which could negatively impact our ability
to compete. Conversely, decreases in the value of the United States
’ dollar relative to other currencies could result in our suppliers raising their prices in order to
continue doing business with us. Fluctuations in currency exchange rates could harm our business in the future.
We may enter into certain transactions such as forward contracts which are designed to reduce the future potential impact resulting from changes in foreign
currency exchange rates. There were no forward exchange contracts outstanding at January 25, 2009.
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