Netgear 2010 Annual Report Download - page 55

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Table of Contents
We are exposed to risks associated with foreign exchange rate fluctuations due to our international sales and operating activities. These
exposures may change over time as business practices evolve and could negatively impact our operating results and financial condition. We
began using foreign currency forward contract derivatives in the fourth quarter of 2008 to partially offset our business exposure to foreign
exchange risk on our foreign currency denominated assets and liabilities. Additionally, in the second quarter of 2009 we began entering into
certain foreign currency forward contracts that have been designated as cash flow hedges under the authoritative guidance for derivatives and
hedging to partially offset our business exposure to foreign exchange risk on portions of our anticipated foreign currency revenue, costs of
revenue, and certain operating expenses. The objective of these foreign currency forward contracts is to reduce the impact of currency exchange
rate movements on our operating results by offsetting gains and losses on the forward contracts with increases or decreases in foreign currency
transactions. The contracts are marked-to-market on a monthly basis with gains and losses included in other income (expense), net in the
Consolidated Statements of Operations, and in cumulative other comprehensive income on the Consolidated Balance Sheets. We do not use
foreign currency contracts for speculative or trading purposes. Hedging of our balance sheet and anticipated cash flow exposures may not always
be effective to protect us against currency exchange rate fluctuations. In addition, we do not fully hedge our balance sheet and anticipated cash
flow exposures, leaving us at risk to foreign exchange gains and losses on the un-hedged exposures. If there were an adverse movement in
exchange rates, we might suffer significant losses. See Note 5 of the Notes to Consolidated Financial Statements for additional disclosure on our
foreign currency contracts, which are hereby incorporated by reference into this Part II, Item 7A.
As of December 31, 2010, we had net assets in various local currencies. A hypothetical 10% movement in foreign exchange rates would
result in an after-tax positive or negative impact of $428,000 to net income, net of our hedged position, at December 31, 2010. Actual future
gains and losses associated with our foreign currency exposures and positions may differ materially from the sensitivity analyses performed as of
December 31, 2010 due to the inherent limitations associated with predicting the foreign currency exchange rates, and our actual exposures and
positions. For the year ended December 31, 2010, 17% of total net revenue was denominated in a currency other than the U.S. dollar.
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