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the date of grant. On February 3, 2005, we accelerated the vesting of 427,448
options with an exercise price of $21.67, which was in excess of the current market
price. The acceleration of these options increased the pro-forma compensation
cost for the twelve months ended December 31, 2005 by approximately $3.2 million,
net of tax. Item 7A. Quantitative and Qualitative Disclosure
About Market Risk. Our principal market risk
relates to changes in the value of the Euro and Great Britain Pound (“GBP”) relative
to the value of the U.S. Dollar. Our consolidated financial statements are denominated
in, and our principal currency is, the U.S. Dollar. A portion of our revenues
($20.0 million, representing approximately 12.0% of aggregate revenues), for the
year ended December 31, 2005 was attributable to sales that were denominated in
Euros and GBPs. Certain of our expenses are also denominated in Euros and GBPs,
which partially offsets risks associated with fluctuations of exchanges rates
between the Euro and GBP on the one hand, and the U.S. Dollar on the other hand.
Because of our Euro and GBP-denominated revenues and expenses, in a year in which
our Euro and GBP-denominated revenues exceed our Euro and GBP-based expenses,
the value of such Euro and GBP-denominated net income increases if the value of
the Euro and GBP increase relative to the value of the U.S. Dollar, and decreases
if the value of the Euro and GBP decrease relative to the value of the U. S. Dollar.
During the year ended December 31, 2005, the exchange rate between the Euro and
GBP against the U.S. Dollar resulted in an increase of our gross revenues of approximately
$263,000 and 0.09% in gross profit. At December
31, 2005, we had a net exposure representing the difference between Euro and GBP
denominated receivables and Euro and GBP denominated payables of approximately
$1.7 million and $295,000, respectively. In order to partially offset such risks,
at November 30, 2005, we entered into 30-day forward contract for Euro and GBP.
We generally enter into similar economic transactions at various times during
the year to partially offset exchange rate risks we bear throughout the year.
We do not purchase or hold derivative financial instruments for speculative or
trading purposes. During the year ended December 31, 2005 and 2004 we experienced
a net loss of approximately $67,000 and $8,000, respectively, on these transactions
executed during 2005 and 2004 in an effort to limit our exposure to fluctuations
in the Euro and GBP against the U.S. Dollar exchange rate. Another
market risk relates to variable rate debt. As of December 31, 2005, we had no
variable rate debt. As long as we do not have variable rate debt, our interest
expense would not be affected by changes in interest rates. | |
