Logitech 2010 Annual Report Download - page 158

146
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, 2010. 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 renminbi $ 35,428 $(3,221) $ 3,936
Euro .................. British pound 22,143 (2,013)2,460
Taiwanese dollar ........ U.S. dollar 17,846 (1,622)1,983
Japanese yen ........... U.S. dollar (12,769)1,161 (1,419)
Mexican peso . . . . . . . . . . U.S. dollar (6,454)587 (717)
Euro .................. Swedish krona (1,736)158 (193)
Euro .................. Swiss franc (1,440)131 (160)
Euro .................. U.S. dollar (1,072) 97 (119)
Australian dollar ........ U.S. dollar 671 (61)75
U.S. dollar ............. Canadian dollar 583 (53)65
Swiss franc . . . . . . . . . . . . U.S. dollar 503 (46)56
$53,703 $(4,882) $ 5,967
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,
2010, net assets held in CNY totaled $35.4 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.
The Company enters into foreign exchange forward contracts to hedge against exposure to changes in foreign
currency exchange rates related to its subsidiaries’ forecasted inventory purchases. The primary risk managed
by using derivative instruments is the foreign currency exchange rate risk. The Company has designated these
derivatives as cash flow hedges. Logitech does not use derivative financial instruments for trading or speculative
purposes. These hedging contracts generally mature within six months, and are denominated in the same currency
as the underlying transactions. Gains and losses in the fair value of the effective portion of the hedges are deferred
as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which
time the gains or losses are reclassified to cost of goods sold. As of March 31, 2010, the notional amounts of foreign
exchange forward contracts outstanding related to forecasted inventory purchases were $46.2 million. Deferred
realized gains of $1.3 million and deferred unrealized gains of $0.1 million are recorded in accumulated other
comprehensive loss at March 31, 2010, 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. These forward contracts generally mature
within one to three months. The Company may also enter into foreign exchange swap contracts to economically