Logitech 2007 Annual Report Download - page 111

foreign currency gains or losses resulting from the translation of net assets or liabilities denominated in foreign
currencies to the U.S. dollar are accumulated in the cumulative translation adjustment component of other
comprehensive income in shareholders’ equity.
The table below provides information about the Company’s underlying transactions that are sensitive to
foreign exchange rate changes, primarily assets and liabilities denominated in currencies other than the functional
currency, where the net exposure is greater than $0.5 million at March 31, 2007. The table below represents the
U.S. dollar impact on earnings of a 10% appreciation and a 10% depreciation of the functional currency as
compared with the transaction currency (in thousands):
Functional Currency Transaction Currency
Net Exposed
Long (Short)
Currency Position
FX Gain (Loss)
From 10%
Appreciation
of Functional
Currency
FX Gain (Loss)
From 10%
Depreciation
of Functional
Currency
U.S. dollar ......... Chinese yuan renminbi ...... $ 77,302 $(7,027) $ 8,589
U.S. dollar ......... Swedish kroner ............ 10,283 (935) 1,143
U.S. dollar ......... Mexican peso ............. 4,432 (403) 492
U.S. dollar ......... Japanese yen .............. 840 (76) 93
U.S. dollar ......... Euro .................... (575) 52 (64)
U.S. dollar ......... Taiwanese dollar .......... (10,113) 919 (1,124)
Euro .............. British pound sterling ....... 20,132 (1,830) 2,237
Euro .............. Russian rouble ............ 2,726 (248) 303
Euro .............. Norwegian Kroner ......... (632) 57 (70)
$104,395 $(9,491) $11,599
Long currency positions represent net assets being held in the transaction currency while short currency
positions represent net liabilities being held in the transaction currency.
The Company’s principal manufacturing operations are located in China, with much of its component and
raw material costs transacted in CNY. However, the functional currency of its Chinese operating subsidiary is the
U.S. dollar as its sales and trade receivables are transacted in U.S. dollars. To hedge against any potential
significant appreciation of the CNY, the Company transferred a portion of its cash investments to CNY accounts.
At March 31, 2007, net assets held in CNY totaled $77.3 million. The Company continues to evaluate the level of
net assets held in CNY relative to component and raw material purchases and interest rates on cash equivalents.
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, 2007, the notional amount of forward foreign exchange contracts outstanding for forecasted inventory
exposures was $38.5 million. These forward contracts generally mature within three months. Deferred realized
gains totaled $0.3 million at March 31, 2007 and are expected to be reclassified to cost of goods sold when the
related inventory is sold.
The Company also enters into foreign exchange forward contracts to reduce the short-term effects of foreign
currency fluctuations on certain foreign currency receivables or payables. The foreign exchange forward
contracts are entered into on a monthly basis and generally mature within one to three months. Further, the
Company may enter into foreign exchange swap contracts to extend the terms of its foreign exchange forward
contracts. The notional amounts of foreign exchange forward contracts outstanding at March 31, 2007 were $9.0
million. The notional amounts of foreign exchange swap contracts outstanding at March 31, 2007 were
$11.5 million. Unrealized net losses on the contracts were immaterial at March 31, 2007.
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