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In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulle-
tin No. 108 (SAB 108). To reduce diversity in practice among registrants, SAB 108 expresses SEC staff views
regarding the process by which misstatements in financial statements are evaluated for purposes of determining
whether financial statement restatement is necessary. The accounting requirements of SAB 108 were effective
for us on January 1, 2006, and did not have a material impact on our consolidated financial position, results of
operations or cash flows.
In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the
accounting and disclosure for uncertainty in tax positions. FIN 48 seeks to reduce the diversity in practice
associated with certain aspects of the recognition and measurement related to accounting for income taxes.
This interpretation is effective for fiscal years beginning after December 15, 2006. We will adopt FIN 48 as of
January 1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded in retained earnings
and other accounts as applicable. We do not believe that FIN 48 will have a material impact on our
consolidated financial statements.
In November 2005, the FASB issued Staff Position No. FAS 115-1, “The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments” (“FSP 115-1”). FSP 115-1 provides accounting guidance
for determining and measuring other-than-temporary impairments of debt and equity securities, and confirms the
disclosure requirements for investments in unrealized loss positions as outlined in EITF issue 03-01, “The Meaning
of Other-Than-Temporary Impairments and its Application to Certain Investments.” The accounting requirements of
FSP 115-1 were effective for us on January 1, 2006, and did not have a material impact on our consolidated
financial position, results of operations or cash flows.
Off Balance Sheet Arrangements
None
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk
Our portfolio of cash equivalents and short-term investments is maintained in a variety of securities,
including government obligations and money market funds. Investments are classified as available-for-sale
securities and carried at their market value with cumulative unrealized gains or losses recorded as a component
of “accumulated other comprehensive income/(loss)” within stockholders’ equity. At December 31, 2006 and
2005, all securities held had maturities or reset dates of less than three years. A sharp rise in interest rates
could have an adverse impact on the market value of certain securities in our portfolio. We do not currently
hedge our interest rate exposure and do not enter into financial instruments for trading or speculative purposes
or utilize derivative financial instruments. A hypothetical and immediate one percent (1%) increase in interest
rates would decrease the fair value in our investment portfolio held at December 31, 2006 and 2005, by
$1.38 million and by $1.77 million, respectively. A hypothetical and immediate one percent (1%) decrease in
interest rates would increase the fair value in our investment portfolio held at December 31, 2006 and 2005,
by $1.38 million and by $1.77 million, respectively. The approximate gains or losses in earnings are estimates,
and actual results could vary due to the assumptions used. At December 31, 2006 and 2005, we had
$195.0 million of 1.25% fixed rate contingent convertible debt outstanding. We presently believe there is
minimal risk that market interest rates will drop significantly below 1.25%.
Foreign Currency Risk
Our business has historically been transacted primarily in the U.S. dollar and, as such, has not been
subject to material foreign currency exchange rate risk. However, the growth in our international operations
has increased our exposure to foreign currency fluctuations as well as other risks typical of international
operations, including, but not limited to, differing economic conditions, changes in political climate, differing
tax structures and other regulations and restrictions. Accordingly, our future results could be materially
adversely impacted by changes in these or other factors.
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