Adaptec 2011 Annual Report Download - page 43

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Table of Contents
We do not attempt to reduce or eliminate our exposure to interest rate risk through the use of derivative financial instruments.
A 1% shift in interest rates would impact our annual pre-tax income by approximately $4.6 million.
Senior Convertible Notes:
At December 31, 2011, a principal amount of $68.3 million of these Notes remained outstanding and $0.2 million of unamortized debt issue costs were
included in Investments and Other Assets.
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 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.
See Item 8. Financial Statements and Supplementary Data, the Notes to the Consolidated Financial Statements, Note 10. Senior Convertible Notes for further
details.
Foreign Currency
Our sales and corresponding receivables are denominated primarily in U.S. 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 12 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 31, 2011, we had 185 currency forward contracts outstanding that qualified and were designated as cash flow hedges. The U.S. dollar
notional amount of these contracts was $73.1 million and the contracts had a fair value of $1.8 million loss.
We attempt to limit our exposure to foreign exchange rate fluctuations from our Canadian dollar net asset or liability positions. We do not hedge our
income tax accruals against fluctuations in foreign currency exchange rates. A 5% shift in the foreign exchange rates between U.S. dollar and the Canadian
dollar would impact pre-tax income by approximately $2.9 million.
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