The Company’s financial performance is subject to risks associated with changes in the value of the U.S. dollar relative to local currencies. The Company’s primary exposure to movements in foreign currency exchange rates relates to non–U.S. dollar–denominated
sales, cost of sales and operating expenses worldwide. Gross margins on the Company’s products in foreign countries and on
products that include components obtained from foreign suppliers could be materially adversely affected by foreign currency
exchange rate fluctuations.
The weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of the Company’s foreign
currency–denominated sales and earnings, and generally leads the Company to raise international pricing, potentially reducing
demand for the Company’s products. In some circumstances, for competitive or other reasons, the Company may decide not to
raise international pricing to offset the U.S. dollar’s strengthening, which would adversely affect the U.S. dollar value of the gross
margins the Company earns on foreign currency–denominated sales.
Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to the Company’s foreign
currency–denominated sales and earnings, could cause the Company to reduce international pricing and incur losses on its
foreign currency derivative instruments, thereby limiting the benefit. Additionally, strengthening of foreign currencies may
increase the Company’s cost of product components denominated in those currencies, thus adversely affecting gross margins.
The Company uses derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to
fluctuations in foreign currency exchange rates. The use of such hedging activities may not be effective to offset any, or more
than a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the
hedges are in place.
