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In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”).
SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. This statement is effective for us beginning January 1, 2009. We are currently
evaluating the potential impact of the adoption of SFAS 141R on our consolidated financial position, results of operations
or cash flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an
amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the interests of the parent and the interests of the
noncontrolling owners. This statement is effective for us beginning January 1, 2009. We are currently evaluating the
potential impact of the adoption of SFAS 160 on our consolidated financial position, results of operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in currency exchange rates and interest rates.
Foreign Exchange Risk
Our exposure to foreign currency transaction gains and losses is the result of certain net receivables due from our
foreign subsidiaries and customers being denominated in currencies other than the U.S. dollar, primarily the British
pound, the euro, the Canadian dollar and the Japanese yen. Our foreign subsidiaries conduct their businesses in local
currency. Our board of directors approved a foreign exchange hedging program designed to minimize the future potential
impact due to changes in foreign currency exchange rates. The program allows for the hedging of transaction exposures.
The types of derivatives that can be used under the policy are forward contracts, options and foreign exchange swaps. We
also generate revenue in certain countries in Asia where there are limited forward currency exchange markets, thus making
these exposures difficult to hedge. We have entered into forward foreign exchange contracts to offset the foreign exchange
risk on certain intercompany assets, as well as cash denominated in currencies other than the local currency of the
subsidiary. The notional principal of forward foreign exchange contracts to purchase U.S. dollars with euros and Taiwan
dollars was $1,498.6 million at December 31, 2007. The notional principal of forward foreign exchange contracts to
purchase euros with British pounds, Japanese yen, Australian dollars and Swedish krona was €296.5 million (or
approximately $433.4 million) at December 31, 2007. There were no other forward exchange contracts outstanding at
December 31, 2007.
Our exposure to foreign currency translation gains and losses arises from the translation of the assets and liabilities of
our subsidiaries to U.S. dollars during consolidation. We recognized translation gains of $61.0 million in 2007 primarily as
a result of generally strengthening foreign currencies against the U.S. dollar and the net asset position of most of our
subsidiaries.
We considered the historical trends in currency exchange rates and determined that it was reasonably possible that
adverse changes in exchange rates of 10% for all currencies could be experienced in the near term. These changes would
have resulted in an adverse impact on income before taxes of approximately $11.6 million and $39.7 million at
December 31, 2006 and December 31, 2007. The adverse impact at December 31, 2006 and 2007 is after consideration of
the offsetting effect of approximately $113.6 million and $163.7 million from forward exchange contracts in place for the
months of December 2006 and December 2007. These reasonably possible adverse changes in exchange rates of 10%
were applied to total monetary assets denominated in currencies other than the local currencies at the balance sheet dates
to compute the adverse impact these changes would have had on our income before taxes in the near term.
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