(FROM THE WALL STREET JOURNAL 1/13/15) 
   By Vipal Monga 

An unexpected surge by the U.S. dollar is causing headaches for finance chiefs.

Not only did the currency's strength weigh on year-end earnings, but it is clouding this year's outlook, complicating corporate borrowing and pension accounting. It is even shaking CFOs' belief the Federal Reserve will raise interest rates in 2015.

As the dollar rises, it lowers the value of revenue companies take in overseas and makes U.S. exports costlier and less competitive. Both factors can have a big impact on corporate results. The S&P 500 companies, for example, rely on foreign markets for over 45% of their sales.

In last year's third quarter, North American and European companies recorded $8 billion in currency losses, according to FiREapps, which advises companies on managing currency risk.

Since then, the dollar has continued to rise. The WSJ Dollar Index has climbed more than 7.5%, hitting a roughly 11 1/2-year high this month. The index tracks the dollar against a basket of 16 currencies, including the euro, the Japanese yen and the British pound.

"It's going to put a damper on fourth-quarter earnings," said Wolfgang Koester, chief executive of FiREapps.

The dollar's surge has been driven by expectations that the Fed will raise U.S. short-term interest in the coming months, as well as a flight to safety as economies in Europe and Asia falter.

To protect against currency fluctuations, many companies hedge their bets with contracts that lock-in exchange rates. Some of their foreign units also make goods or buy supplies abroad to avoid importing parts from the U.S. The stronger dollar makes those imports costlier.

But those strategies offer only limited protection.

On Jan. 20 International Business Machines Corp. will report a blow to year-end earnings because its hedges didn't provide enough cover, said Martin Schroeter, its chief financial officer. In addition, IBM's management has thrown out its forecast for the year.

IBM had said it would chalk up adjusted profit of $20 a share in 2015, but it plans to lower its projection this month. "We have some real macro headwinds in the form of a strong dollar," Mr. Schroeter said.

Last month, Oracle Corp. last month told investors that its revenue would have risen 7% in the quarter ended Nov. 30 had the dollar's value been stable. Instead, the software company reported half that growth.

Oracle co-CEO Safra Catz said the strengthening dollar would reduce Oracle's profits in the current quarter by about four cents a share, and that the currency's "unusually high volatility" made even that figure iffy.

The dollar's movement is making it riskier for American companies to borrow money in foreign markets.

Verizon Communications Inc. sold $5.4 billion of bonds in Europe last year, but the telecom company would think twice about doing something like that again soon, said CFO Fran Shammo.

That's because Verizon swaps the foreign debt into dollars via contracts with banks, which take on the risk of exchange-rate changes. But, if the dollar value of that foreign debt falls too far, the company might have to put up cash as collateral under the terms of those contracts.

"That's real cash," said Mr. Shammo. "So we have to manage the risk and not just raise as much as we want outside the U.S."

Of course, the strong dollar can be a boon for some businesses. Networking-gear maker Ciena Corp., for example, saved $15.4 million on research and development costs in Canada last year because of the weaker Canadian dollar.

Demand for the dollar also has helped drive down U.S. interest rates. Worried about Europe's economy and emerging markets, investors have snapped up dollars to buy U.S. Treasury notes. That's pushed yields on the 10-year Treasury note below 2%, which has seldom occurred since the summer of 2013.

Corporate-bond yields fell to an average of 3.02% last week, down from 3.27% this time last year, according to Barclays PLC.

Although falling yields make it cheaper for companies to borrow, they are playing havoc with corporate pension plans.

Declining interest rates more than doubled pension deficits to $343 billion at the 40% of the Fortune 1000 companies that have defined-benefit pension plans and December year-ends, according to consulting firm Towers Watson.

"We might have a growing gap in pension funding," if rates drop, said Carol Roberts, CFO of International Paper Co. The company's pension plan had a $2.2 billion funding deficit at the end of 2013.

"In the world we live in today," Ms. Roberts said, "we just expect volatility."

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Maxwell Murphy and Shira Ovide contributed to this article.

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