Prior to 1991, NCR was organized differently than it is now on a geographic basis. However, it was still considered one of the world’s premier MNEs in terms of the amount of foreign to total revenues. Although the new NCR has an Americas division that includes North America and Latin America, the old NCR had a Latin America/Middle East/Africa geographic region that encompassed the world’s most volatile regions at the time.
Foreign-exchange Risk Management under AT& T
Foreign-exchange exposure was greater under AT & T than it was for NCR, but international was a smaller part of its total business, so AT & T started with little real expertise in the area. As AT & T began to expand its foreign revenues, both in terms of exports and imports as well as foreign direct investment, it had to develop policies and procedures for managing exposures. When AT & T acquired NCR, it permitted NCR to retain its foreign currency risk-management responsibilities for foreign operations, but philosophical conflicts arose over the best way to deal with exposures. For example, NCR felt it was important to hedge balance sheet as well as cash flows exposures, whereas AT & T did not feel inclined to hedge balance sheet exposures. In its 1995 annual report, AT & T discussed its general philosophy for hedging foreign-exchange exposures:
We enter into foreign-currency exchange contracts, including forward, option and swap contracts, to manage out exposure to changes in currency exchange rates, principally Canadian dollars, Deutsche marks, pounds sterling and Japanese yen. Some of the contracts involve the exchange of two currencies, according to the local needs of foreign subsidiaries. The use of these derivative financial instruments allows us to reduce our exposure to risk that the eventual dollar net cash inflows and outflows, resulting from the sale of products to foreign customers and purchases from the foreign suppliers, will be adversely affected by changes in exchange rates. Our foreign exchange contracts are designated for firmly committed or forecasted purchases and sales. These transactions are generally expected to occur in less than one year. For firmly committed sales and purchases, gains and losses are recognized as adjustments to the underlying hedged transactions when the future sales and purchases are recognized, or immediately if the commitment is canceled. Gains or losses on foreign exchange contracts that are designated for forecasted transactions are recognized in other income as the exchange rate change.