Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A .
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market
risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse
changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange
rates, customer concentrations, and interest rates. We do not hold or issue financial instruments for trading purposes.
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Foreign
Currency Exchange Risk
Approximately
60.1%, 54.3% and 52.2% of our revenues for the years ended December 31, 2022, 2021 and 2020, respectively, were earned in non U.S.
dollar denominated currencies, principally the Euro. Our expenses are generally denominated in the currencies in which our operations
are located, primarily the U.S. dollar and New Israeli Shekel ("NIS"), Euro, and to a lesser extent, the South Korean Won ("KRW"). Our
NIS denominated expenses consist primarily of personnel and overhead costs. Our consolidated results of operations and cash flows are,
therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to
changes in foreign exchange rates. A hypothetical 10% change in foreign currency exchange rates between the Euro and the U.S. dollar would
increase or decrease our net income by $152.0 million for the year ended December 31, 2022. A hypothetical 10% change in foreign
currency exchange rates between the NIS and the U.S. dollar would increase or decrease our net income by $36.4 million for the year
ended December 31, 2022.
For purposes of our consolidated
financial statements, local currency assets and liabilities are translated at the rate of exchange to the U.S. dollar on the balance sheet
date and local currency revenues and expenses are translated at the exchange rate as of the date of the transaction or at the average
exchange rate to the U.S. dollar during the reporting period.
To date, we have used
derivative financial instruments, specifically foreign currency forward contracts and put and call options, to manage exposure to foreign
currency risks by hedging portions of the anticipated payroll payments denominated in NIS. Our foreign currency forward contracts are
expected to mitigate exchange rate changes related to the hedged assets. Those hedging contracts are designated as cash flow hedges.
In addition, we also
entered into derivative instrument arrangements to hedge the Company’s exposure to currencies other than the U.S. dollar, mainly
put and call options to sell Euro for U.S . dollars, forward contracts to sell AUD for U.S. dollars,
forward contracts to sell Euro for U.S. dollars and forward contracts to sell U.S. dollars for KRW .
These derivative instruments are not designated as cash flow hedges.
We had cash and cash
equivalents of 783.1 million and 530.1 million as of
December 31, 2022 and 2021 , respectively, which
was held for working capital purposes. We had available-for-sale marketable securities with an estimated fair value of 886.6
million and 650.0 million as of December 31, 2022
and 2021 , respectively. In addition, we had restricted bank deposits of 1.9
million as of December 31, 2022 and 2021 .
Additionally, our hedging activities may also contribute to increased losses as a result of volatility in foreign currency markets. If
foreign exchange currency markets continue to be volatile, such fluctuations in foreign currency exchange rates could materially and adversely
affect our profit margins and results of operations in future periods. Also, the volatility in the foreign currency markets may make it
difficult to hedge our foreign currency exposures effectively.
Concentrations of Major
Customers
Our trade accounts receivables
potentially expose us to a concentration of credit risk with our major customers. For the year ended December 31,
2022 , one major customer accounted for 18.5%
of our total revenues, and as of December 31, 2022 , three
major customers accounted for approximately 42.2% of our consolidated trade receivables balance.
For the year ended December 31, 2021 , two major
customers accounted for 30.9% of total revenues , and as of December 31,
2021 , two major customers accounted for approximately
39.3% of our consolidated trade receivables balance . We currently do not foresee a credit risk associated with these receivables.
Commodity Price Risk
We are subject to risk
from fluctuating market prices of certain commodity raw materials which are used in our products, including
Copper, Lithium, Nickel and Cobalt. Prices of these raw materials may be affected by supply restrictions or other market factors
from time to time, and we do not enter into hedging arrangements to mitigate commodity risk. Significant price changes for these raw materials
could reduce our operating margins if we are unable to recover such increases from our customers, and could harm our business, financial
condition, and results of operations.
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