Columbia Sportswear 2003 Annual Report Download - page 59

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COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 17—FINANCIAL RISK MANAGEMENT AND DERIVATIVES
The Company’s foreign currency risk management objective is to protect cash flows resulting from
production purchases, intercompany transactions and other costs from the impact of exchange rate movements.
The Company manages a portion of these exposures with short-term strategies after giving consideration to
market conditions, contractual agreements, anticipated sale and purchase transactions, and other factors. Firmly
committed and anticipated transactions and the related receivables and payables may be hedged with forward
exchange contracts or purchased options. Premiums paid on purchased options are included in prepaid expenses
and are recognized in earnings ratably over the life of the option. Gains and losses arising from foreign currency
forward and purchased option contracts, and cross-currency swap transactions are recognized in cost of goods
sold or selling, general and administrative expenses as offsets of gains and losses resulting from the underlying
hedged transactions. Hedge effectiveness is determined by evaluating whether gains and losses on hedges will
offset gains and losses on the underlying exposures. This evaluation is performed at inception of the hedge and
periodically over the life of the hedge.
At December 31, 2003 and 2002, the Company had approximately $70,971,000 and $71,978,000,
respectively, (notional) in forward exchange contracts. The net unrealized derivative loss included in the
Company’s liabilities and deferred in other comprehensive income was $2,831,000 and $2,823,000 at December
31, 2003 and 2002, respectively.
The counterparties to derivative transactions are major financial institutions with investment grade credit
ratings. However, this does not eliminate the Company’s exposure to credit risk with these institutions. This
credit risk is generally limited to the unrealized gains in such contracts should any of these counterparties fail to
perform as contracted and is immaterial to any one institution at December 31, 2003 and 2002. To manage this
risk, the Company has established strict counterparty credit guidelines, which are continually monitored and
reported to Senior Management according to prescribed guidelines. As a result, the Company considers the risk
of counterparty default to be minimal.
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