Tecumseh Products 2014 Annual Report Download - page 37

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35
We have developed strategies to mitigate or partially offset these impacts, primarily hedging against transactional exposure
where the risk of loss is greatest. This involves entering into short-term derivative contracts to sell or purchase U.S. Dollars at
specified rates based on estimated currency cash flows. In particular, we have entered into foreign currency derivative contracts
to hedge the Brazilian, European and Indian export sales, which are predominately denominated in U.S. Dollars. However,
these hedging programs only reduce exposure to currency movements over the limited time frame of up to eighteen months.
Ultimately, long-term changes in currency exchange rates have lasting effects on the relative competitiveness of operations
located in certain countries versus competitors located in different countries. Additionally, if the currencies weaken against the
U.S. Dollar, any hedge contracts that have been entered into at higher rates result in losses recognized in our Consolidated
Statements of Operations when they are settled. From January 1 to December 31, 2014, the Brazilian Real weakened against
the U.S. Dollar by 13.4%, the Indian Rupee weakened against the U.S. Dollar by 1.9%, and the Euro weakened against the
U.S. Dollar by 13.6%. This weakening primarily occurred in the second half of 2014.
At December 31, 2014 and 2013, we held foreign currency forward contracts with a total notional value of $21.2 million and
$22.3 million, respectively. The decline in the notional value of our currency contracts was primarily due to changes in our
business practices to better utilize U.S. Dollars collected by our Brazilian, Indian and European locations. Based on our current
level of activity, and including any mitigation as the result of hedging activities, we believe that a 10% strengthening of the
Brazilian Real, the Euro, or the Indian Rupee against the U.S. Dollar would have negatively impacted our operating profit on
an annual basis for 2014 and 2013 as indicated in the table below:
10% Strengthening against U.S. $
(in millions) 2014 2013
Real $(3.3)$ (2.7)
Euro (2.5)(9.5)
Rupee (1.2)(0.7)
Total $(7.0)$ (12.9)
Based on our current foreign currency forward contracts, a 10% weakening in the value of the Brazilian Real, the Euro or the
Indian Rupee against the U.S. Dollar would have resulted in losses under such foreign currency forward contracts that would
adversely impact our operating results in 2014 and 2013 as indicated in the table below:
10% Weakening against U.S. $
(in millions) 2014 2013
Real $(0.2)$ (0.8)
Euro (0.3)—
Rupee ——
Total $(0.5)$ (0.8)