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46
its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income
when a subsidiary is deconsolidated, with that gain or loss measured using the fair value of the noncontrolling equity
investment on the deconsolidation date. SFAS No. 160 is effective for our fiscal year beginning January 1, 2009 and
requires retroactive adoption of the presentation and disclosure requirements for existing minority interests; all other
requirements may only be applied prospectively. Adoption of SFAS No. 160 is not expected to have a material impact
on our financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Currency Exchange Risk
We have significant international operations and, therefore, our revenues, earnings, cash flows and financial position are
exposed to foreign currency risk from foreign currency denominated receivables, payables, sales transactions and net
investments in foreign operations.
We derive more than half of our revenues from customers outside the United States. This business is, for the most part,
transacted through international subsidiaries and generally in the currency of the end-user customers. Therefore, we are
exposed to the risks that changes in foreign currency could adversely impact our revenues, net income and cash flow.
To hedge against the foreign exchange exposure of certain forecasted receivables, payables and cash balances, we enter
into short-term foreign currency forward contracts. There are two objectives of our foreign currency forward-contract
program: (1) to offset any foreign exchange currency risk associated with cash receipts expected to be received from our
customers over the next 30-day period and (2) to offset the impact of foreign currency exchange on our net monetary
assets denominated in currencies other than the functional currency of the legal entity. These forward contracts typically
mature within 30 days of execution. We record gains and losses associated with currency rate changes on these
contracts in results of operations, offsetting gains and losses on the related assets and liabilities. The success of this
hedging program depends on forecasts of transaction activity in the various currencies and contract rates versus
financial statement rates. To the extent these forecasts are overstated or understated during periods of currency
volatility, we could experience unanticipated currency gains or losses.
At December 31, 2008, we had foreign currency forward contracts outstanding with an aggregate notional value of
$39.7 million, denominated in the euro, British pound and Canadian dollar, as a hedge against actual and forecasted
foreign currency denominated receivables, payables and cash balances. The mark-to-market effect associated with these
contracts was a net unrealized loss of $45,000 at December 31, 2008. For the year ended December 31, 2008, net losses
of $0.3 million resulting from forward contracts and $0.7 million of net transaction and remeasurement losses on the
related assets and liabilities were included in our results of operations.
A hypothetical 10% change in foreign currency rates would not have a material impact on our financial position,
assuming the above-mentioned forecast of foreign currency exposure is accurate, because the impact on the forward
contracts as a result of a 10% change would at least partially offset the impact on the asset and liability positions of our
foreign subsidiaries.
Interest Rate Risk
At December 31, 2008, we held $147.7 million in cash, cash equivalents and marketable securities, including short-term
certificates of deposit, commercial paper, asset-backed securities, agency bonds and discount notes. Marketable
securities are classified as “available for sale” and are recorded on the balance sheet at market value, with any
unrealized gain or loss recorded in other comprehensive income (loss). A hypothetical 10% increase or decrease in
interest rates would not have a material impact on the fair market value of these instruments due to their short
maturities.