Arrow Electronics 2000 Annual Report Download - page 30

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exposure relates to transactions in which the currency collected from customers is different from the
currency utilized to purchase the product sold in Europe, the Asia/Pacific region, and Latin and South
America. At the present time, the company hedges only those currency exposures for which natural
hedges do not exist. Anticipated foreign currency cash flows and earnings and investments in
businesses in Europe, the Asia/Pacific region, and Latin and South America are not hedged as in many
instances there are natural offsetting positions. The translation of the financial statements of the
non-North American operations is impacted by fluctuations in foreign currency exchange rates. Had
the various average foreign currency exchange rates remained the same during 2000 as compared with
1999, 2000 sales and operating income would have been $466 million and $44 million higher, respectively,
than the actual results for 2000.
The company’s interest expense, in part, is sensitive to the general level of interest rates in the
Americas, Europe, and the Asia/Pacific region. The company manages its exposure to interest rate
risk through the proportion of fixed rate and variable rate debt in its total debt portfolio. At December 31,
2000, approximately 48 percent of the company’s debt was subject to fixed rates and 52 percent of its
debt was subject to variable rates. Interest expense would fluctuate by approximately $12 million if
average interest rates had changed by one percentage point in 2000. This amount was determined by
considering the impact of a hypothetical interest rate on the company’s borrowing cost. This analysis
does not consider the effect of the level of overall economic activity that could exist in such an environ-
ment. Further, in the event of a change of such magnitude, management could likely take actions to
further mitigate any potential negative exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity analysis assumes no
changes in the company’s financial structure.