HLIT » Topics » Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

These excerpts taken from the HLIT 10-K filed Mar 17, 2008.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 
Market risk represents the risk of loss that may impact the operating results, financial position, or liquidity of Harmonic due to adverse changes in market prices and rates. Harmonic is exposed to market risk because of changes in interest rates and foreign currency exchange rates as measured against the U.S. Dollar and currencies of Harmonic’s subsidiaries.
 
FOREIGN CURRENCY EXCHANGE RISK
 
Harmonic has a number of international subsidiaries each of whose sales are generally denominated in U.S. dollars. In addition, Harmonic has various international branch offices that provide sales support and systems integration services. Sales denominated in foreign currencies were approximately 7% of net sales in 2007 and 11% of net sales in 2006. Periodically, Harmonic enters into foreign currency forward exchange contracts (“forward contracts”) to manage exposure related to accounts receivable denominated in foreign currencies. Harmonic does not enter into derivative financial instruments for trading purposes. At December 31, 2007, we had a forward exchange contract to sell Euros totaling $8.5 million that matures within the first quarter of 2008. While Harmonic does not anticipate that near-term changes in exchange rates will have a material impact on Harmonic’s operating results, financial position and liquidity, Harmonic cannot assure you that a sudden and significant change in the value of local currencies would not harm Harmonic’s operating results, financial position and liquidity.
 
INTEREST RATE RISK
 
Exposure to market risk for changes in interest rates relate primarily to Harmonic’s investment portfolio of marketable debt securities of various issuers, types and maturities and to Harmonic’s borrowings under its bank line of credit facility. Harmonic does not use derivative instruments in its investment portfolio, and its investment portfolio only includes highly liquid instruments. These investments are classified as available for sale and are carried at estimated fair value, with material unrealized gains and losses reported in other comprehensive income. There is risk that losses could be incurred if Harmonic were to sell any of its securities prior to stated maturity. As of December 31, 2007, our cash, cash equivalents and investments balance was $269.3 million. Based on our estimates, a 100 basis points, or 1%, change in interest rates would have increased or decreased the fair value of our investments by approximately $0.7 million.
 
AUCTION RATE SECURITIES
 
Harmonic’s cash and investment balances at December 31, 2007 were $269.3 million. As of December 31, 2007, Harmonic held approximately $34.2 million of auction rate securities, or ARSs. As of February 29, 2008, we have $31.2 million invested in ARSs which are invested in municipal government obligations and preferred securities in closed-end mutual funds, and all have a credit rating of AA+ or better. Through February 29, 2008, auctions for approximately $31.2 million of these securities were not successful, resulting in our continuing to hold these securities


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and issuers paying interest at a maximum contractual rate. Based on current market conditions, it is likely that future auctions related to these securities will be unsuccessful in the near term. Unsuccessful auctions will result in our holding these securities beyond their next scheduled auction reset dates and limiting the short-term liquidity of these investments. While these failures in the auction process have affected our ability to access these funds in the near term, we do not believe that the underlying securities or collateral have been affected. If the credit rating of the security issuers deteriorates or does not meet our investment criteria, we may be required to adjust the carrying value of these investments through an impairment charge or dispose of these securities, possibly at a loss.
 
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.



 



Market risk represents the risk of loss that may impact the
operating results, financial position, or liquidity of Harmonic
due to adverse changes in market prices and rates. Harmonic is
exposed to market risk because of changes in interest rates and
foreign currency exchange rates as measured against the
U.S. Dollar and currencies of Harmonic’s subsidiaries.


 




FOREIGN CURRENCY
EXCHANGE RISK



 



Harmonic has a number of international subsidiaries each of
whose sales are generally denominated in U.S. dollars. In
addition, Harmonic has various international branch offices that
provide sales support and systems integration services. Sales
denominated in foreign currencies were approximately 7% of net
sales in 2007 and 11% of net sales in 2006. Periodically,
Harmonic enters into foreign currency forward exchange contracts
(“forward contracts”) to manage exposure related to
accounts receivable denominated in foreign currencies. Harmonic
does not enter into derivative financial instruments for trading
purposes. At December 31, 2007, we had a forward exchange
contract to sell Euros totaling $8.5 million that matures
within the first quarter of 2008. While Harmonic does not
anticipate that near-term changes in exchange rates will have a
material impact on Harmonic’s operating results, financial
position and liquidity, Harmonic cannot assure you that a sudden
and significant change in the value of local currencies would
not harm Harmonic’s operating results, financial position
and liquidity.


 




INTEREST RATE
RISK



 



Exposure to market risk for changes in interest rates relate
primarily to Harmonic’s investment portfolio of marketable
debt securities of various issuers, types and maturities and to
Harmonic’s borrowings under its bank line of credit
facility. Harmonic does not use derivative instruments in its
investment portfolio, and its investment portfolio only includes
highly liquid instruments. These investments are classified as
available for sale and are carried at estimated fair value, with
material unrealized gains and losses reported in other
comprehensive income. There is risk that losses could be
incurred if Harmonic were to sell any of its securities prior to
stated maturity. As of December 31, 2007, our cash, cash
equivalents and investments balance was $269.3 million.
Based on our estimates, a 100 basis points, or 1%, change
in interest rates would have increased or decreased the fair
value of our investments by approximately $0.7 million.


 




AUCTION RATE
SECURITIES



 



Harmonic’s cash and investment balances at
December 31, 2007 were $269.3 million. As of
December 31, 2007, Harmonic held approximately
$34.2 million of auction rate securities, or ARSs. As of
February 29, 2008, we have $31.2 million invested in
ARSs which are invested in municipal government obligations and
preferred securities in closed-end mutual funds, and all have a
credit rating of AA+ or better. Through February 29, 2008,
auctions for approximately $31.2 million of these
securities were not successful, resulting in our continuing to
hold these securities





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and issuers paying interest at a maximum contractual rate. Based
on current market conditions, it is likely that future auctions
related to these securities will be unsuccessful in the near
term. Unsuccessful auctions will result in our holding these
securities beyond their next scheduled auction reset dates and
limiting the short-term liquidity of these investments. While
these failures in the auction process have affected our ability
to access these funds in the near term, we do not believe that
the underlying securities or collateral have been affected. If
the credit rating of the security issuers deteriorates or does
not meet our investment criteria, we may be required to adjust
the carrying value of these investments through an impairment
charge or dispose of these securities, possibly at a loss.







 




EXCERPTS ON THIS PAGE:

10-K (2 sections)
Mar 17, 2008
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