Global Finance 359determining the extent of their liability exposure? Similarly, does Interface
make decisions about the currency in which to borrow depending upon its ex-
isting asset exposure?^8
Being the product of calculation and design does not make the seminat-
ural hedges any less effective or desirable. In fact, their existence prompts
management to be proactive in identifying hedging opportunities that do not
EXHIBIT 12.2 Natural foreign currency hedges.
Company Natural HedgeAdobe Systems Inc. (1999) We currently do not use financial instruments to hedge
local currency denominated operating expenses in
Europe. Instead, we believe that a natural hedge ex ists,
in that local currency revenue from product upgrades
substantially offsets the local currency denominated
operating expenses.
Armstrong World Industries Inc. Armstrong’s global manufacturing and sales provide a
(1999) natural hedgeof foreign currency exchange-rate
movements as foreign currency revenues are offset by
foreign currency expenses.
Baldwin Technology Company The Company also maintains certain levels of cash
Inc. (1999) denominated in various currencies which acts as a
natural hedge.
Baltek Corporation (1998) During 1997, the Company began borrowing in Ecuador
in local currency (sucre) denominated loans as a natural
hedgeof the net investments in Ecuador.
Interface Inc. (1999) During 1998, the Company restructured its borrowing
facilities which provided for multi-currency loan
agreements resulting in the Company’s ability to borrow
funds in the countries in which the funds are expected to
be utilized. Further, the advent of the Euro has prov ided
additional currency stability with the Company’s
European markets. As such, these events have provided
the Company natural hedgesof currency f luctuations.
Pall Corporation (2000) About one quarter of Pall’s sales are in countries tied to
the Euro. At current exchange rates, this could reduce our
sales by close to 4%. Fortunately, many of our costs in
Europe are also reduced by a weak Euro. The weak
British Pound also reduces our exposure as most Pall sales
to Europe are manufactured in England. This provides a
natural hedge and helps preserve profitability.
Telef lex Inc. (1999) Approximately 65% of the company’s total borrowings of
$345 million are denominated in currencies other than the
US dollar, principally Euro, providing a natural hedge
against f luctuations in the value of non-domestic assets.
SOURCES: Companies’ annual reports. The year following each company name designates the annual re-
port from which each example is drawn.