372 Planning and Forecasting
also a factor. As with insurance generally, closing out fully the possibility of loss
is more expensive.
Some firms provide information on the extent of their hedging through
schedules of net exposure. E.I. DuPont de Nemours & Company (DuPont) pro-
vides such a schedule. A slightly abridged version is presented in Exhibit 12.11.
DuPont also declares the following about the objective of its hedging program:
The primary business objective of this hedging program is to maintain an
approximately balanced position in foreign currencies so that exchange gains
and losses resulting from exchange rate changes, net of related tax effects, are
minimized.^23Exhibit 12.11 reveals that DuPont has hedged almost all of its exposure.
The extent of their hedging means that their earnings and cash f lows will not
be affected in a material way from the hedged exposures. This is reinforced by
the following disclosure:
Given the company’s balanced foreign exchange position, a 10 per cent adverse
change in foreign exchange rates upon which these contracts are based would
result in exchange losses from these contracts that, net of tax, would, in all ma-
terial respects be fully offset by exchange gains on the underlying net monetary
exposures for which the contracts are designated as hedges.^24Other firms disclose more limited hedging activity. For example, The
Quaker Oats Company reported that about 60% of its net investment in foreign
subsidiaries was hedged. This disclosure is presented in Exhibit 12.12.^25
Other Hedging Considerations
Discussed above are a number of factors that bear on the hedging decision,
such as whether or not to hedge, what to hedge, how to hedge, and how much
to hedge. Some other issues center on the cost and term or duration of hedging
arrangements. A sampling of company references to these issues is provided in
Exhibit 12.13.
EXHIBIT 12.11 Net currency exposure: E.I. DuPont de Nemours &
Company, December 31, 1999 (in millions).
After-Tax Net After-Tax
Monetary Open Contracts Net
Asset/(Liability) to Buy/(Sell) After-Tax Exposure
Currency Exposure Foreign Currency Asset/(Liability)
Brazilian real $ 109 $(101) $ 7
British pound (337) 334 (3)
Canadian dollar 514 (509) 5
Japanese yen 76 (71) 5
Taiwan dollar (136) 136 —
SOURCE: E.I. DuPont de Nemours & Company, annual report, December 1999, 37.