364 Planning and Forecasting
EXHIBIT 12.5 Hedging with forward contracts.
Company Hedging TargetsArmstrong World Industries Inc. Armstrong also uses foreign currency forward exchange
(1999) contractsto hedge inter-company loans.
Arvin Industries Inc. (1999) Arvin manages the foreign currency risk of anticipated
transactions by forecasting such cash f lows at the operating
entity level, compiling the total Company exposure and
entering into forward foreign exchange contractsto lessen
foreign exchange exposures deemed excessive.
Dow Chemical Company (1999) The Company enters into foreign exchange forward
contractsand options to hedge various currency
exposures or create desired exposures. Exposures
primarily relate to assets and liabilities and bonds
denominated in foreign currencies, as well as economic
exposure, which is derived from the risk that the
currency f luctuations could affect the dollar value of
future cash f lows related to operating activities.
Tenneco Inc. (1999) Tenneco enters into foreign currency forward purchase
and sales contractsto mitigate its exposure to changes in
exchange rates on inter-company and third party trade
receivables and payables. Tenneco has from time to time
also entered into for ward contracts to hedge its net
investments in foreign subsidiaries.
UAL Inc. (1999) United enters into Japanese yen forward exchange
contractsto minimize gains and losses on the revaluation
of short-term yen-denominated liabilities. The yen
for wards typically have short-term maturities and are
marked to fair value at the end of each accounting period.
Vishay Intertechnology Inc. In connection with the Company’s acquisition of all the
(1999) common stock of TEMIC Semiconductor GmbH and
80.4% of the common stock of Siliconix, Inc., the
Company entered into a for ward exchange contract in
December 1997 to protect against f luctuations in the
exchange rate between the U.S. dollar and the Deutsche
mark since the purchase price was denominated in
Deutsche marks and payable in U.S. dollars. At
December 31, 1997, the Company had an unrealized loss
on this contract of $5,295,000, which resulted from
marking the contract to market value. On March 2, 1998,
the for ward contract was settled and the Company
recognized an additional loss of $6,269,000.
SOURCES: Companies’ annual reports. The year following each company name designates the annual re-
port from which each example is drawn.