Adaptec 2002 Annual Report Download - page 45

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Our sales and corresponding receivables are made primarily in United States dollars. Through our operations
in Canada and elsewhere outside of the United States, we incur research and development, customer support
costs and administrative expenses in Canadian and other local currencies. We are exposed, in the normal
course of business, to foreign currency risks on these expenditures. In our effort to manage such risks, we
have adopted a foreign currency risk management policy intended to reduce the effects of potential
short−term fluctuations on the results of operations stemming from our exposure to these risks. As part of
this risk management, we typically forecast our operational currency needs, purchase such currency on the
open market at the beginning of an operational period, and hold these funds as a hedge against currency
fluctuations. We usually limit the operational period to 3 months or less. Because we do not engage in
foreign currency exchange rate fluctuation risk management techniques beyond these periods, our cost
structure is subject to long−term changes in foreign exchange rates.
While we expect to continue to use this method to manage our foreign currency risk, in the future we may
decide to use foreign exchange contracts to manage this risk.
We regularly analyze the sensitivity of our foreign exchange positions to measure our foreign exchange risk.
At December 31, 2002, a 10% shift in foreign exchange rates would not have materially impacted our foreign
exchange income because our foreign currency net asset position was immaterial.
Debt
We issued $275,000,000 of convertible subordinated notes in August 2001. Because we pay fixed interest
coupons on our notes, market interest rate fluctuations do not impact our debt interest payments. However,
the fair value of our convertible subordinated notes will fluctuate as a result of changes in the price of
our common stock, changes in market interest rates and changes in our credit worthiness.
Our convertible subordinated notes are not listed on any securities exchange or included in any automated
quotation system, but have been traded over the counter, on the Portal Market or under Rule 144 of the
Securities Act of 1933. The exchange prices from these trades are not always available to us and may not be
reliable. Trades under the Portal Market do not reflect all trades of the securities and the figures
recorded are not independently verified. The average bid and ask price of our convertible subordinated notes
on the Portal Market on December 27, 2002 was $75.50 per $100 in face value, resulting in an aggregate fair
value of approximately $207.6 million. There were no reported trades on December 28 or December 29, 2002.
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