LTEC » Topics » 7A. Qualitative and Quantitative Disclosures About Market Risk

These excerpts taken from the LTEC 10-K filed Mar 31, 2008.
7A. Qualitative and Quantitative Disclosures About Market Risk
 
We are exposed to various market risks, including fluctuations in foreign currency rates and interest rates. We may enter into various derivative transactions to manage certain of these exposures; however, we did not have any derivative financial instruments as of December 31, 2007.
 
Interest Rate Risk
 
Our $112.0 million senior secured credit facility is subject to variable interest rates. As such, changes in U.S. interest rates affect interest we pay on our debt. For the year ended December 31, 2007, an increase in the average interest rate of 10%, i.e. from 10.44% to 11.49%, would have resulted in an approximately $921,000 increase in net loss before income taxes. The fair value of such debt approximates the carrying amount on the consolidated balance sheet as of December 31, 2007.
 
Foreign Currency Risk
 
A majority of our sales are denominated in U.S. Dollars, and during the year ended December 31, 2007 approximately 23.4% of our sales were denominated in foreign currencies. We ordinarily do not engage in hedging, rate swaps, or other derivatives as a means to minimize our foreign currency risk and, instead, mitigate that exposure by limiting the portion of our sales that are denominated in other than U.S. Dollars. Assuming the same level of foreign currency denominated sales as in the year ended December 31, 2007, a 10% decline in the average exchange rates for all these currencies would have caused a decline of approximately $4.4 million, or 8.7%, of our sales.


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The majority of our products are manufactured by foreign third-party contract manufacturers with the majority of the contracts denominated in U.S. Dollars. The exchange rate for these contracts is adjusted quarterly based on the Chinese Yuan Renminbi. Foreign third-party manufacturing creates risks that include fluctuations in currency exchange rates that could affect the price we pay for our product. Our two largest foreign contract manufacturers’ products represented 53% of our net sales for the year ended December 31, 2007. A 10% increase to the cost of the product sold that was manufactured by these two manufacturers would have resulted in an increase to cost of sales for the year ended December 31, 2007 of approximately $5.2 million.
 
We are exposed to foreign exchange rate fluctuations as the financial results of our foreign subsidiary, Martin Audio, are translated into U.S. Dollars in consolidation. Our exposure to foreign exchange rate fluctuations also arises from intercompany payables and receivables to and from our foreign subsidiary. Foreign exchange rate fluctuations did not have a material impact on our financial results in 2007.
 
Item 8.   Consolidated Financial Statements and Supplementary Data
 
The following consolidated financial statements and supplementary data are included beginning on page 28 of this report.


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7A.
Qualitative and Quantitative Disclosures About Market
Risk



 



We are exposed to various market risks, including fluctuations
in foreign currency rates and interest rates. We may enter into
various derivative transactions to manage certain of these
exposures; however, we did not have any derivative financial
instruments as of December 31, 2007.


 




Interest
Rate Risk



 



Our $112.0 million senior secured credit facility is
subject to variable interest rates. As such, changes in
U.S. interest rates affect interest we pay on our debt. For
the year ended December 31, 2007, an increase in the
average interest rate of 10%, i.e. from 10.44% to 11.49%, would
have resulted in an approximately $921,000 increase in net loss
before income taxes. The fair value of such debt approximates
the carrying amount on the consolidated balance sheet as of
December 31, 2007.


 




Foreign
Currency Risk



 



A majority of our sales are denominated in U.S. Dollars,
and during the year ended December 31, 2007 approximately
23.4% of our sales were denominated in foreign currencies. We
ordinarily do not engage in hedging, rate swaps, or other
derivatives as a means to minimize our foreign currency risk
and, instead, mitigate that exposure by limiting the portion of
our sales that are denominated in other than U.S. Dollars.
Assuming the same level of foreign currency denominated sales as
in the year ended December 31, 2007, a 10% decline in the
average exchange rates for all these currencies would have
caused a decline of approximately $4.4 million, or 8.7%, of
our sales.





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The majority of our products are manufactured by foreign
third-party contract manufacturers with the majority of the
contracts denominated in U.S. Dollars. The exchange rate
for these contracts is adjusted quarterly based on the Chinese
Yuan Renminbi. Foreign third-party manufacturing creates risks
that include fluctuations in currency exchange rates that could
affect the price we pay for our product. Our two largest foreign
contract manufacturers’ products represented 53% of our net
sales for the year ended December 31, 2007. A 10% increase
to the cost of the product sold that was manufactured by these
two manufacturers would have resulted in an increase to cost of
sales for the year ended December 31, 2007 of approximately
$5.2 million.


 



We are exposed to foreign exchange rate fluctuations as the
financial results of our foreign subsidiary, Martin Audio, are
translated into U.S. Dollars in consolidation. Our exposure to
foreign exchange rate fluctuations also arises from intercompany
payables and receivables to and from our foreign subsidiary.
Foreign exchange rate fluctuations did not have a material
impact on our financial results in 2007.


 















Item 8.  

Consolidated
Financial Statements and Supplementary Data



 



The following consolidated financial statements and
supplementary data are included beginning on page 28 of
this report.





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 7A. Qualitative and Quantitative Disclosures About Market Risk

 

We are exposed to various market risks, including fluctuations in foreign currency rates and interest rates. We may enter into various derivative transactions to manage certain of these exposures; however we did not have any derivative financial instruments as of December 31, 2005.

 

At December 31, 2005, we had variable rate lines of credit with outstanding balances of $9.6 million. In addition, our $29.5 million term loans also had variable interest rates. As such, changes in U.S. interest rates affect interest paid on debt and we are exposed to interest rate risk. For the year ended December 31, 2005, an increase in the average interest rate of 10%, i.e. from 8.08% to 8.89%, would have resulted in an approximately $346,000 decrease in net income before income taxes. The fair value of such debt approximates the carrying amount on the consolidated balance sheet at December 31, 2005.

 

A substantial majority of our revenues are denominated in U.S. Dollars, and during the fiscal year ended December 31, 2005 approximately 13% of our revenues were denominated in foreign currencies. We ordinarily do not engage in hedging, rate swaps, or other derivatives as a means to minimize our foreign currency risk and, instead, mitigate that exposure by limiting the portion of our sales that are denominated in other than U.S. Dollars. Assuming the same level of foreign currency denominated sales as in 2005, a 10% decline in the average exchange rates for all these currencies would have caused a decline of approximately $2.4 million, or 1%, of our revenues.

 

This excerpt taken from the LTEC 10-K filed Mar 31, 2005.

7A.  Qualitative and Quantitative Disclosures About Market Risk

 

We are exposed to various market risks, including changes in foreign currency rates and interest rates.  We may enter into various derivative transactions to manage certain of these exposures; however we did not have any derivative financial instruments as of December 31, 2004.

 

At December 31, 2004, we had a variable rate line of credit with an outstanding balance of $11.8 million. As such, changes in U.S. interest rates affect interest paid on debt and we are exposed to interest rate risk. For the year ended December 31, 2004, an increase in the average interest rate of 10%, i.e. from 5.08% to 5.59%, would have resulted in an approximately $39,000 increase in net loss before income taxes and discontinued operations. The fair value of such debt approximates the carrying amount on the consolidated balance sheet at December 31, 2004.

 

Our non-U.S. subsidiaries have functional currencies of the U.S. Dollar and consequently we translate non-monetary assets and liabilities at historical rates and remeasure monetary assets and liabilities at exchange rates in effect at the balance sheet date. These subsidiaries are located in the U.K. and Canada.  Income and expense items are translated at the average exchange rates prevailing during the period. A 10% decrease in the value of the U.S. Dollar compared to the local currencies of our non-U.S. subsidiaries, throughout the year ended December 31, 2004, would have resulted in an approximately $93,000 increase to the net loss before income taxes.

 

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Cobra Electronics (COBR)
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