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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-03-31 compared with 2021-03-29 · 28 added, 52 removed, 2 unchanged (98% of the section changed)

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

objective of our short-term investment activities is to preserve principal while concurrently maximizing the income we receive

from our trading securities without significantly increasing risk.

Some of the securities that we invest in may be subject to

interest rate risk and/or market risk.

This means that a change in prevailing interest rates, with respect to interest rate risk,

or a change in the value of the United States equity markets, with respect to market risk, may cause the principal amount or market

value of the trading securities to fluctuate.

To minimize these risks in the future, we intend to maintain our portfolio of cash

equivalents and trading securities in a variety of securities, including commercial paper, money market funds, high-grade corporate

bonds, government and non-government debt securities, certificates of deposit and equity securities.

In general, money market

funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate.

a 100-basis point increase in interest rates or a 10% decline in the value of the United States equity markets would not be expected

to have a material impact on the value of such money market funds.

Declines in interest rates over time will, however, reduce

our interest income.

quarter ended June 30, 2020, we sold all of our investment in debt trading securities.

They were comprised of AAA rated money

market funds that invest in first-tier only securities, which primarily include domestic commercial paper, securities issued

or guaranteed by the U.S.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our short-term investment activities is to preserve principal while concurrently maximizing the income we receive from our equity securities at fair value without significantly increasing risk.

Some of the securities that we invest in may be subject to interest rate risk and/or market risk.

This means that a change in prevailing interest rates, with respect to interest rate risk, or a change in the value of the United States equity markets, with respect to market risk, may cause the principal amount or market value of the equity securities at fair value to fluctuate.

For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the current value of the principal amount of our investment may decline.

To minimize these risks in the future, we intend to maintain our portfolio of cash equivalents and equity securities at fair value in a variety of securities.

Cash equivalents are comprised of investments in AAA rated money market funds that invest in first-tier only securities, which primarily include domestic commercial paper and securities issued or guaranteed by the U.S.

government or its agencies.

In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate.

Accordingly, a 100 basis point increase in interest rates or a 10% decline in the value of the United States equity markets would not be expected to have a material impact on the value of such money market funds.

Declines in interest rates over time will, however, reduce our interest income.

During 2020, we sold our investments in debt securities that were comprised of direct investments in short-term, highly liquid, investment grade, U.S.

government and corporate securities (short-term investments), and AAA rated money market funds that invested in first-tier only securities, which primarily included domestic commercial paper, securities issued or guaranteed by the U.S.

government or its agencies, U.S.

bank obligations, and fully collateralized repurchase agreements

(included in cash and cash equivalents in the accompanying consolidated balance sheets), and direct investments in

short term, highly liquid, investment grade, U.S.

government and corporate securities (included in “Trading securities

in the accompanying consolidated balance sheets).

bank obligations and fully collateralized repurchase agreements (cash equivalents).

Investment Risk

We are exposed

to investment risks related to changes in the underlying financial condition of certain of our equity investments in these technology

The fair value of these investments can be significantly impacted by the risk of adverse changes in securities markets

generally, as well as risks related to the performance of the companies whose securities we have invested in, risks associated

with specific industries, and other factors.

These investments are subject to significant fluctuations in fair value due to the

volatility of the securities markets and of the underlying businesses.

As of December 31, 2020 and December 31,

2019, the carrying value of our common stock and warrants in public and private companies was $285.8 million and $18.6 million,

respectively.

We record our

common stock and warrant investments in publicly traded companies at fair value, which are subject to market price volatility.

As of December 31, 2020, a hypothetical 10% adverse change in the market price of our investments in publicly traded common stock

would have resulted in a decrease of approximately $0.4 million in the fair value of our equity warrant investments in Veritone

and a decrease of approximately $10.9 million in our other equity investments.

We evaluate our equity and equity warrant investments

in private companies for impairment when events and circumstances indicate that the decline in fair value of such assets below

the carrying value is other-than temporary.

FINANCIAL STATEMENTS

AND SUPPLEMENTARY DATA

The financial

statements and related financial information required to be filed hereunder are indexed under Item 15 of this report and are incorporated

herein by reference.

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

We are exposed to investment risks related to changes in the underlying financial condition of certain of our equity investments in technology companies.

The fair value of these investments can be significantly impacted by the risk of adverse changes in securities markets generally, as well as risks related to the performance of the companies whose securities we have invested in, risks associated with specific industries, and other factors.

These investments are subject to significant fluctuations in fair value due to the volatility of the securities markets and of the underlying businesses.

As of December 31, 2021 and 2020, the carrying value of our equity investments in public and private companies was $398.5 million and $285.8 million, respectively.

We record our equity investments in publicly traded companies at fair value, which are subject to market price volatility.

As of December 31, 2021, a hypothetical 10% adverse change in the market price of our investments in publicly traded common stock would have resulted in a decrease of approximately $36.2 million in such equity investments.

We evaluate our equity investments in private companies for impairment when events and circumstances indicate that the decline in fair value of such assets below the carrying value is other-than temporary.

Foreign Currency Exchange Risk

Although Acacia historically has not had material foreign operations, we are also exposed to market risks related to fluctuations in foreign currency exchange rates between the U.S.

dollar, and the British Pound and Euro currency exchange rates, primarily related to revenue agreements with licensees domiciled in foreign jurisdictions and certain equity security investments.

As of December 31, 2021, a hypothetical 10% change in exchange rates related to our at risk foreign denominated equity securities would have approximately a $29.4 million effect on our financial position and results of operations.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and related financial information required to be filed hereunder are indexed under Item 15 of this report and are incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk