Logitech 2005 Annual Report Download - page 97

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hedge against a potential appreciation of the RMB, the Company has transferred a portion of its cash investments
to RMB accounts, and as a result its net assets held in RMB has increased from $5.5 million at March 31, 2004 to
$89.1 million at March 31, 2005. Under China’s existing current exchange rate system, the RMB is pegged to the
U.S. dollar, accordingly the Company’s exposure to exchange rate changes for net assets held in RMB is limited.
On June 8, 2001 the Company sold CHF 170.0 million ($95.6 million based on exchange rates at the time of
issue) Swiss franc denominated 1% Convertible Bonds which mature in June 2006. Although the Company is
exposed to foreign exchange risks on this long-term obligation, the Swiss franc liability serves to partially offset
the effect of exchange rate fluctuations on assets held in European currencies. Unrealized gains or losses
resulting from translation of the bonds to the U.S. dollar are accumulated in the cumulative translation
adjustment component of other comprehensive loss in shareholders’ equity. As of March 31, 2005, the carrying
amount of the convertible bonds was $147.7 million, which reflects appreciation of the Swiss franc against the
U.S. dollar since June 8, 2001 with an impact on the carrying amount of $52.1 million and the accretion of the
redemption premium over the life of the debt. If the U.S. dollar strengthened by 10% in comparison to the Swiss
franc, the increase in the cumulative translation adjustment component of shareholders’ equity would be $12.9
million. If the U.S. dollar weakened by 10% in comparison to the Swiss franc, a decrease of approximately $15.8
million would occur in the cumulative translation adjustment component of shareholders’ equity.
From time to time, certain subsidiaries enter into forward exchange contracts to hedge inventory purchase
exposures denominated in U.S. dollars. The amount of the forward exchange contracts is based on forecasts of
inventory purchases. These forward exchange contracts are denominated in the same currency as the underlying
transactions. Logitech does not use derivative financial instruments for trading or speculative purposes. As of
March 31, 2005, the notional amount of forward foreign exchange contracts outstanding for forecasted inventory
exposures was $20.0 million. These forward contracts generally mature within three months. Deferred realized
gains totaled $.2 million at March 31, 2005 and are expected to be reclassified to cost of goods sold when the
related inventory is sold. If the U.S. dollar had appreciated by 10% as compared to the hedged foreign currency,
an unrealized gain of $2.6 million in our forward foreign exchange contract portfolio would have occurred. If the
U.S. dollar had depreciated by 10% as compared to the hedged foreign currency, a $1.5 million unrealized loss in
our forward foreign exchange contract portfolio would have occurred.
Interest Rates
The interest rate on the Company’s long-term debt is fixed. A change in interest rates, therefore, has no
impact on interest expense or cash flows with respect to its long-term obligations.
Changes in interest rates could impact the Company’s anticipated interest income on its cash equivalents
and interest expense on variable rate short-term debt. The Company prepared sensitivity analyses of its interest
rate exposures to assess the impact of hypothetical changes in interest rates. Based on the results of these
analyses, a 100 basis point decrease or increase in interest rates from the March 31, 2005 and March 31, 2004
period end rates would not have a material effect on the Company’s results of operations or cash flows.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
59
CG
20-F
LISA