Memorex 2013 Annual Report Download - page 48

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that are not present in domestic operations. The additional risks include political and economic instability, terrorist activity, the
possibility of expropriation, trade tariffs or embargoes, unfavorable tax laws, restrictions on royalties, dividends and currency
remittances, requirements for governmental approvals for new ventures and local participation in operations such as local
equity ownership and workers’ councils.
Our foreign currency hedging policy attempts to manage some of the foreign currency risks over near term periods;
however, we cannot ensure that these risk management activities will offset more than a portion of the adverse financial
impact resulting from unfavorable movements in foreign exchange rates or that medium and longer term effects of exchange
rates will not be significant. Although we attempt to utilize hedging to manage the impact of changes in currency exchange
rates, our revenue or costs are adversely impacted when the U.S. dollar sustains a strengthening position against currencies
in which we sell products or a weakening exchange rate against currencies in which we incur costs.
In accordance with established policies and procedures, we may utilize derivative financial instruments, including
forward exchange contracts, options, combination option strategies and swap agreements to manage certain of these
exposures. Factors that could impact the effectiveness of our hedging include the accuracy of our forecasts, the volatility of
the currency markets and the availability of hedging instruments. We do not hold or issue derivative financial instruments for
trading or speculative purposes and we are not a party to leveraged derivative transactions. The utilization of derivatives and
hedging activities is described more fully in Note 12 — Fair Value Measurements and Derivative Financial Instruments in our
Notes to Consolidated Financial Statements.
As of December 31, 2013, we had $163.2 million notional amount of foreign currency forward and option contracts of
which $29.4 million hedged recorded balance sheet exposures. This compares to $295.5 million notional amount of foreign
currency forward and option contracts as of December 31, 2012, of which $46.5 million hedged recorded balance sheet
exposures. An immediate adverse change of 10 percent in year-end foreign currency exchange rates with all other variables
(including interest rates) held constant would reduce the fair value of foreign currency contracts outstanding as of
December 31, 2013 by $6.4 million.
We are exposed to credit risk associated with cash investments and foreign currency derivatives. We do not believe that
our cash investments and foreign currency derivatives present significant credit risks because the counterparties to the
instruments consist of major financial institutions and we monitor and manage the notional amount of contracts entered into
with each counterparty.
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