This excerpt taken from the CVO 10-K filed Mar 2, 2006.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks such as changes in interest and foreign currency exchange rates, which may adversely affect results of operations and financial position. Risks from interest rate fluctuations and changes in foreign currency exchange rates are managed through normal operating and financing activities. We do not utilize derivatives for speculative purposes, nor do we hedge interest rate exposure through the use of swaps and options.
Exposure to market risk from changes in interest rates relates primarily to our variable rate debt obligations. The interest on this debt is the London Interbank Offered Rate (LIBOR) plus a margin. At December 31, 2005, we had variable rate debt outstanding of $135.6 million. A 1% increase in LIBOR on debt outstanding subject to variable interest rates would increase our interest expense and reduce our net income by approximately $1.4 million.
We have operations in Canada, and thus are exposed to market risk for changes in foreign currency exchange rates of the Canadian dollar. In 2005, a uniform 10% strengthening of the U.S. dollar relative to the Canadian dollar would have resulted in a decrease in sales and net income of approximately $20.3 million and $2.2 million, respectively. The effects of foreign currency exchange rates on future results would also be impacted by changes in sales levels or local currency prices.