Adaptec 2005 Annual Report Download - page 59

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Table of Contents
Holders may convert the Notes into the right to receive the conversion value (i) when our stock price exceeds 120% of the approximately $8.80 per share initial
conversion price for a specified period, (ii) in certain change in control transactions, and (iii) when the trading price of the Notes does not exceed a minimum
price level. For each $1,000 principal amount of Notes, the conversion value represents the amount equal to 113.6687 shares multiplied by the per share price of
our common stock at the time of conversion. If the conversion value exceeds $1,000 per $1,000 in principal of Notes, we will pay $1,000 in cash and may pay
the amount exceeding $1,000 in cash, stock or a combination of cash and stock, at our election.
Foreign Currency
Our sales and corresponding receivables are denominated primarily in United States dollars. We generate a significant portion of our revenues from sales to
customers located outside the United States including Canada, Europe, the Middle East and Asia. We are subject to risks typical of an international business
including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign
exchange rate volatility. Accordingly, our future results could be materially adversely affected by changes in these or other factors.
Through our operations in Canada and elsewhere outside the United States, we incur research and development, sales, customer support and administrative
expenses in Canadian and other foreign currencies. We are exposed, in the normal course of business, to foreign currency risks on these expenditures, particularly
in Canada. 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 our operating results stemming from our exposure to these risks. As part of this risk management strategy, we enter into foreign exchange forward
contracts on behalf of our Canadian subsidiary. These forward contracts offset the impact of exchange rate fluctuations on forecasted cash flows or firm
commitments. We limit the forward contracts operational period to twelve months or less and we do not enter into foreign exchange forward contracts for trading
purposes. Because we do not engage in foreign exchange risk management techniques beyond these periods, our cost structure is subject to long-term changes in
foreign exchange rates.
As at December 30, 2007, we had twelve currency forward contracts outstanding that qualified and were designated as cash flow hedges. The U.S. dollar notional
amount of these contracts was $62.2 million and the contracts had a fair value of $2.2 million.
We attempt to limit our exposure to foreign exchange rate fluctuations from our Canadian dollar net asset or liability positions. We hedge less than twenty
percent of our Canadian income tax accrual in the ordinary course of business, and consequently in 2007 we recorded a $18.2 million foreign exchange loss
relating to this item. Our profitability would be materially impacted by a shift in the foreign exchange rates between United States and Canadian currencies. For
example, if the value of the United States dollar decreased by 5% relative to the Canadian dollar, our profitability would decrease by $5.4 million.
53
Source: PMC SIERRA INC, 10-K, February 22, 2008