Adaptec 2007 Annual Report Download - page 58

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Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The following discussion regarding our risk management activities contains “forward-looking statements” that involve risks and uncertainties. Actual results may
differ materially from those projected in the forward-looking statements.
Cash and Cash Equivalents and Short-term Investments
We regularly maintain a short and long term investment portfolio of various types of government and corporate debt instruments. We do not hold any
asset-backed commercial paper. Our investments are made in accordance with an investment policy approved by our Board of Directors. Maturities of these
instruments are less than three years, with the majority being within one year. To minimize credit risk, we diversify our investments and select minimum ratings
of P-1 or A by Moody’s, or A-1 or A by Standard and Poor’s, or equivalent. We classify these securities as available-for-sale and they are carried at fair market
value.
Investments in instruments with both fixed and floating rates carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely
impacted because of a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors,
our future investment income may fall short of expectations because of changes in interest rates, or we may suffer losses in principal if we were to sell securities
that have declined in market value because of changes in interest rates.
We do not attempt to reduce or eliminate our exposure to interest rate risk through the use of derivative financial instruments.
Based on a sensitivity analysis performed on the financial instruments held at December 30, 2007, the impact to the fair value of our investment portfolio by a
shift in the yield curve of plus or minus 150 basis points would result in a decline, or increase, in portfolio value of less than $0.1 million.
Senior Convertible Notes:
At December 30, 2007, all $225 million of the 2.25% senior convertible Notes were outstanding. Because we pay fixed interest coupons on these Notes, market
interest rate fluctuations do not impact our debt interest payments. However, the fair value of the senior convertible 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 2.25% senior convertible Notes are not listed on any exchange or included in any automated quotation system, but are registered for resale under the
Securities Act of 1933.
The Notes rank equal in right of payment with our other unsecured senior indebtedness and mature on October 15, 2025 unless earlier redeemed by us at our
option, or converted or put to us at the option of the holders. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, commencing
on April 15, 2006. We may redeem all or a portion of the Notes at par on and after October 20, 2012. The holders may require that we repurchase notes on
October 15, 2012, 2015 and 2020 respectively.
52
Source: PMC SIERRA INC, 10-K, February 22, 2008