388 Planning and Forecasting
The Becton Dickenson statement is the clearest statement of the case for
not hedging translation exposure. The key elements of the Becton Dickenson
position are that: (1) translation adjustments are included in shareholders’ eq-
uity; (2) translation adjustments do not affect conventional net income; and
(3) translation adjustments do not affect cash f low.
The DaimlerChyrsler reference to the net assets of subsidiaries located
abroad not being included in the management of currencies means that they
are not hedged. The Quaker Oats Company does do some hedging of net in-
vestments in foreign subsidiaries. Both Henry Schein and Titan International
emphasize the long-term nature of the investments in foreign subsidiaries in
explaining the decision not to hedge this exposure.
EXHIBIT 12.23 Hedging of translation exposure: Selected company
policies.
Company Hedging Policy
AGCO Corporation (1999) The Company’s translation exposure resulting from
translating the financial statements of foreign subsidiaries
into U.S. dollars is not hedged. When practical, this
translation impact is reduced by financing local operations
with local borrowings.
Becton Coulter Inc. (1999) We occasionally use foreign currency contracts to hedge the
market risk of a subsidiary’s net asset position. Market value
gains and losses on foreign currency contracts used to hedge
the market risk of a subsidiary’s net asset position are
recognized in “Accumulated Other Comprehensive Income”
as translation gains and losses.
Becton, Dickenson & The Company does not generally hedge these translation
Company (1999) exposures since such amounts are recorded as cumulative
currency translation adjustments, a separate component of
shareholders’ equity, and do not affect earnings or current
cash f lows.
DaimlerChyrsler AG (1999) The net assets of the Group which are invested abroad in
subsidiaries and affiliated companies are not included in the
management of currencies.
The Quaker Oats Company The Company uses foreign currency for ward and option
(1999) contracts and currency swap agreements to manage foreign
currency rate risk related to certain cash f lows from foreign
entities and net investments in foreign subsidiaries.
Henry Schein Inc. (1998) The Company considers its investments in foreign operations
to be both long-term and strategic. As a result, the Company
does not hedge the long-term translation exposure in its
balance sheet.
Titan International (1999) The Company views its investments in foreign subsidiaries as
long-term commitments and does not hedge foreign currency
transaction or translation exposures.
SOURCES: Companies’ annual reports. The year following each company name designates the annual re-
port from which each example is drawn.