GXDX » Topics » Item 3. Quantitative and Qualitative Disclosures About Market Risk.

This excerpt taken from the GXDX 10-Q filed Apr 30, 2009.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market Risk

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk primarily in the area of changes in U.S. interest rates. We do not have any material foreign currency or other derivative financial instruments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to increase the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities.

Interest Rate Risk

All of our investment securities are classified as available-for-sale and therefore reported on the balance sheet at fair value. Changes in the overall level of interest rates affect our interest income that is generated from our cash, cash equivalents and investment securities. If a 100 basis point change in overall interest rates were to occur in 2009, our interest income would change by approximately $394,000 in relation to amounts we would expect to earn assuming short-term investment security balances and types of investment securities are consistent with those as of December 31, 2008.

This excerpt taken from the GXDX 10-K filed Feb 26, 2009.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.

Market Risk

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk primarily in the area of changes in U.S. interest rates. We do not have any material foreign currency or other derivative financial instruments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to increase the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities.

Interest Rate Risk

All of our investment securities are classified as available-for-sale and therefore reported on the balance sheet at fair value. Changes in the overall level of interest rates affect our interest income that is generated from our cash, cash equivalents and investment securities. If a 100 basis point change in overall interest rates were to occur in 2009, our interest income would change by approximately $394,000 in relation to amounts we would expect to earn assuming short-term investment securities balances and types of investment securities are consistent with those as of December 31, 2008.

 

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This excerpt taken from the GXDX 10-Q filed Nov 6, 2008.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk primarily in the area of changes in United States interest rates and conditions in the credit markets. We do not have any material foreign currency or other derivative financial instruments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to increase the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities.

 

All of our investment securities are classified as available-for-sale and therefore reported on the balance sheet at market value. Our investment securities consist of corporate debt securities, government-sponsored enterprise securities and ARS.

 

As of September 30, 2008, we held an ARS with a cost basis of $5.0 million consisting of debt issued by a municipality, which is underwritten by an insurance agency and rated A2 by Moody’s Investors Service and AA by Standard & Poor’s. It is classified as a long-term investment security due to the current illiquidity in the ARS markets. Liquidity is obtained through a Dutch auction at pre-determined intervals, or every 35 days. The recent conditions in the global credit markets have prevented some investors from liquidating their holdings of ARS because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities. If there is insufficient demand for the securities at the time of an auction, the auction may not be completed and the interest rates may be reset to predetermined higher rates.

 

This auction began failing in February 2008 when sell orders exceeded buy orders at the auction dates. When auctions for this ARS failed, the investment was not readily convertible to cash. The funds associated with this failed auction will not be accessible without loss of principal until the issuer redeems the ARS, a successful auction occurs, a buyer is found outside of the auction process,

 

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or the ARS matures in 2038. As such, we may be required to hold it to maturity. Likewise, if the credit ratings of the security issuers deteriorate and any decline in market value is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an other-than-temporary impairment charge to the condensed consolidated statement of operations.

 

The valuation of this security is based on an internally developed valuation analysis of interest rate spreads, the credit quality, underlying assets of the issuer and underwriter, likelihood of a successful auction or redemption in the near term and the ability to obtain liquidity in the near-term. As a result of the estimated fair value, we have recorded a temporary impairment in the valuation of this security of $1.2 million during the three months ended September 30, 2008. The unrealized loss in the current period, net of deferred tax, is included in accumulated other comprehensive (loss) income. Due to the uncertainty related to the timing of liquidity in the ARS market, we have classified this ARS investment security as a long-term asset on our balance sheet with a fair value of $3.8 million as of September 30, 2008. Because we were required to value this security using only subjective inputs, our valuations determined at a later date or by a third party, may be different from the fair values we have determined as of September 30, 2008.

 

We do not currently need to access these funds for operational purposes for the foreseeable future. Based on our ability to access our cash and cash equivalents and short-term investment securities and our expected operating cash flows, we do not anticipate that the temporary illiquidity of this investment will affect our ability to execute our current business plan.

 

This excerpt taken from the GXDX 10-Q filed Jul 31, 2008.
Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk primarily in the area of changes in United States interest rates and conditions in the credit markets. We do not have any material foreign currency or other derivative financial instruments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to increase the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities.

 

All of our investment securities are classified as available-for-sale and therefore reported on the balance sheet at market value. Our investment securities consist of corporate debt securities, government-sponsored enterprise securities and ARS. To date, we have not recorded any realized gains or losses or recognized any significant unrealized gains or losses on our investment portfolio.

 

As of June 30, 2008, our investment securities available-for-sale consisted of $7.5 million of high-grade ARS issued by municipalities. Our ARS are debt instruments with a long-term maturity and with an interest rate that is reset in short intervals through Dutch auctions. The recent conditions in the global credit markets have prevented some investors from liquidating their holdings of ARS because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities. If there is insufficient demand for the securities at the time of an auction, the auction may not be completed and the interest rates may be reset to predetermined higher rates. If the credit ratings of the security issuers deteriorate and any decline in market value is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an impairment charge. We have been informed of auction failures where there has been insufficient demand at auctions for securities that we hold.

 

When auctions for these securities fail, the investments may not be readily convertible to cash. In the event we need to access the funds that are in an illiquid state, we will not be able to do so without the possible loss of principal, until a future auction for these investments is successful, they are redeemed by the issuer or they mature. At this time, management has not obtained sufficient evidence to conclude that these investments are impaired or that they will not be settled in the short term, although the market for these investments is presently uncertain. If we are unable to sell these securities in the market or they are not redeemed, then we may be required to hold them to maturity. We do not currently need to access these funds for operational purposes for the foreseeable future. Currently, we have not recorded any impairment charges and we will continue to monitor and evaluate these investments on an ongoing basis for impairment. Based on our ability to access our cash and other investment securities, our expected operating cash flows, and our other sources of cash, we do not anticipate that the potential illiquidity of these investments will affect our ability to execute our current business plan.

 

On July 10, 2008, an issuer redeemed at par $2.5 million of ARS investment securities we held as available-for-sale. In July 2008, the one remaining ARS of $5.0 million that we hold was downgraded by Moody’s Investors Service from Aaa to A2 and by Standard & Poor’s from AAA to AA, but remains compliant with our investment policy. In July 2008, the Board of Directors updated our investment policy, eliminating ARS from qualified investment purchases.

 

This excerpt taken from the GXDX 10-Q filed May 8, 2008.
Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk primarily in the area of changes in United States interest rates and conditions in the credit markets. We do not have any material foreign currency or other derivative financial instruments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to increase the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities.

 

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All of our investment securities are classified as available-for-sale and therefore reported on the balance sheet at market value. Our investment securities consist of high-grade ARS, corporate debt securities and government agency securities. As of March 31, 2008, our investment securities available-for-sale consisted of $12.5 million of high-grade ARS issued primarily by municipalities and universities. Our ARS are debt instruments with a long-term maturity and with an interest rate that is reset in short intervals through Dutch auctions. The recent conditions in the global credit markets have prevented some investors from liquidating their holdings of ARS because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities. If there is insufficient demand for the securities at the time of an auction, the auction may not be completed and the interest rates may be reset to predetermined higher rates. If the credit ratings of the security issuers deteriorate and any decline in market value is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an impairment charge. We have been informed of auction failures where there has been insufficient demand at auctions for securities that we hold. To date, we have not recorded any realized gains or losses or recognized any significant unrealized gains or losses on our investment portfolio. On April 29, 2008, an issuer redeemed $2.0 million of ARS investment securities we held as available-for-sale. Therefore, as of April 30, 2008, we had a remaining balance of $10.5 million of ARS investment securities available-for-sale.

 

When auctions for these securities fail, the investments may not be readily convertible to cash. In the event we need to access the funds that are in an illiquid state, we will not be able to do so without the possible loss of principal, until a future auction for these investments is successful, they are redeemed by the issuer or they mature. At this time, management has not obtained sufficient evidence to conclude that these investments are impaired or that they will not be settled in the short term, although the market for these investments is presently uncertain. If we are unable to sell these securities in the market or they are not redeemed, then we may be required to hold them to maturity. We do not currently need to access these funds for operational purposes for the foreseeable future. Currently, we have not recorded any impairment charges we will continue to monitor and evaluate these investments on an ongoing basis for impairment. Based on our ability to access our cash and other investment securities, our expected operating cash flows, and our other sources of cash, we do not anticipate that the potential illiquidity of these investments will affect our ability to execute our current business plan.

 

This excerpt taken from the GXDX 10-Q filed Dec 12, 2007.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Our cash and cash equivalents as of September 30, 2007 consisted primarily of cash, money market funds and short-term government agency securities with maturities of less than 90 days. As of November 30, 2007, including the net proceeds from our IPO, we have added auction rate securities and longer-term government securities to our investment portfolio. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of United States interest rates. 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. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate.

 

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