Adaptec 2006 Annual Report Download - page 26

Table of Contents
exchange rates, we enter into foreign currency forward contracts. The contracts reduce, but do not eliminate, the impact of foreign currency exchange rate
movements. In addition, this foreign currency risk management policy may not be effective in addressing long-term fluctuations since our contracts do not extend
beyond a 12-month maturity.
We regularly limit our exposure to foreign exchange rate fluctuations from our Canadian dollar net asset or liability positions. We do not hedge our accrual for
Canadian income taxes in the ordinary course of business, and consequently in 2006 we recorded a $0.4 million foreign exchange gain relating to this item. Our
profitability would be materially impacted by a 5% shift in the foreign exchange rates between United States and Canadian currencies.
We are exposed to the credit risk of some of our customers.
Many of our customers employ contract manufacturers to produce their products and manage their inventories. Many of these contract manufacturers represent
greater credit risk than our networking equipment customers, who generally do not guarantee our credit receivables related to their contract manufacturers.
In addition, a significant portion of our sales flows through our distribution channel, which generally represent a higher credit risk. Should these companies
encounter financial difficulties, our revenues could decrease, and collection of our significant accounts receivables with these companies could be jeopardized.
Our business strategy contemplates acquisition of other products, technologies, or businesses, which could adversely affect our operating performance.
Acquiring products, intellectual property, technologies, or businesses from third parties is a core part of our business strategy. That strategy depends on the
availability of suitable acquisition candidates at reasonable prices and our ability to resolve challenges associated with integrating acquired businesses into our
existing business. These challenges include integration of product lines, sales forces, customer lists and manufacturing facilities, development of expertise
outside our existing business, diversion of management time and resources, and possible divestitures, inventory write-offs and other charges. We also may be
forced to replace key personnel who may leave our Company as a result of the acquisition. We cannot be certain that we will find suitable acquisition candidates
or that we will be able to meet these challenges successfully.
An acquisition could absorb substantial cash resources, require us to incur or assume debt obligations, or issue additional equity. If we are not able to obtain
financing, then we may not be in a position to consummate acquisitions. If we issue equity securities in connection with an acquisition, we may dilute our
common stock with securities that have an equal or a senior interest in our Company.
From time to time, we license, or acquire, technology from third parties to incorporate into our products. Incorporating technology into our products
may be more costly, or require additional management attention to achieve the desired functionality.
The complexity of our products could result in unforeseen or undetected defects or bugs, which could adversely affect the market acceptance of new products and
damage our reputation with current or prospective customers.
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠