To: jeff wheatley who wrote (6206 ) 12/16/1997 4:31:00 PM From: uu Read Replies (2) | Respond to
Jeff:I read that SUNW derives about 20% of its revenues from Asia, including Japan. Have you seen any analysis of how this will impact earnings? Japan net revenues increased 3% for fiscal 1997, compared to an increase of 13% in fiscal 1996. The Company attributes the decrease in the growth of revenues from 13% in fiscal 1996 to 3% in fiscal 1997 to current economic trends affecting the Japanese market, including currency movements against the U.S. dollar, which the Company does not expect to change materially in the near term. If the economic trends in Japan significantly worsen in a quarter or decline over an extended period of time, the Company's results from operations and cash flows would be adversely affected. The Company is primarily exposed to changes in exchange rates on the Japanese yen , British pound sterling, French franc, and German deutsche mark. When the U.S. dollar strengthens against these currencies, the U.S. dollar value of non-U.S. dollar-based sales decreases. When the U.S. dollar weakens against these currencies, the U.S. dollar value of non-U.S. dollar-based sales increases. Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs increases when the U.S. dollar weakens and decreases when the U.S. dollar strengthens. Overall, the Company is a net receiver of currencies other than the U.S. dollar and, as such, benefits from a weaker dollar and is adversely affected by a stronger dollar relative to major currencies worldwide. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may adversely affect the Company's consolidated sales and gross margins as expressed in U.S. dollars. To mitigate the short-term effect of changes in currency exchange rates on the Company's non-U.S. dollar-based sales, product procurement, and operating expenses, the Company regularly hedges its net non-U.S. dollar-based exposures by entering into foreign exchange forward and option contracts to hedge anticipated transactions. Currently, hedges of transactions do not extend beyond three months. Given the short term nature of the Company's foreign exchange forward and option contracts, the Company's exposure to risk associated with currency market movements on the instruments in place at year end is not material. See "Other Financial Instruments" in Note 1 of the "Notes to Consolidated Financial Statements" for more details. Compared with fiscal 1996, the dollar in fiscal 1997 has strengthened against the Japanese yen and most major European currencies. Management has estimated that the net impact of currency fluctuations on operating results, while slightly unfavorable, was not significant in any of the fiscal years in the three-year period ended June 30, 1997."
