NVIDIA 2010 Annual Report Download - page 73

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investment and Interest Rate Risk
As of January 31, 2010 and January 25, 2009, we had $1.73 billion and $1.26 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 31,
2010, we did not have any investments in auction-rate preferred securities. Our investments are denominated in United States dollars.
All of the cash equivalents and marketable securities are treated as “available-for-sale.” 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 31, 2010, 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 $8.3 million.
The financial turmoil that affected the banking system and financial markets and increased the possibility that financial institutions
might consolidate or go out of business 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. Volatility in the financial markets and 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. As of
January 31, 2010, our investments in government agencies and government sponsored enterprises represented approximately 62% of
our total investment portfolio, while the financial sector accounted for approximately 22% of our total investment portfolio. Of the
financial sector investments, over half are guaranteed by the U.S. government. Substantially all of our investments are with A/A2 or
better rated securities. If the fair value of our investments in these sectors was to decline by 2%-5%, fair market values for these
investments would decline by approximately $27-$67 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 2010, 2009 and
2008 was $0.9 million, $2.0 million and $1.7 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 31,
2010.
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Source: NVIDIA CORP, 10-K, March 18, 2010 Powered by Morningstar® Document Research℠