Columbia Sportswear 2012 Annual Report Download - page 69

Download and view the complete annual report

Please find page 69 of the 2012 Columbia Sportswear annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 81

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
65
to a lesser extent, interest rate risk and equity market risk. The Company regularly assesses these risks and has established
policies and business practices designed to mitigate them. The Company does not engage in speculative trading in any
financial market.
The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from
anticipated U.S. dollar denominated inventory purchases by subsidiaries that use European euros, Canadian dollars, Japanese
yen or Korean won as their functional currency. The Company manages this risk by using currency forward and European-
style option contracts formally designated and effective as cash flow hedges. Hedge effectiveness is determined by evaluating
the ability of a hedging instrument’s cumulative change in fair value to offset the cumulative change in the present value
of expected cash flows on the underlying exposures. For forward contracts, the change in fair value attributable to changes
in forward points are excluded from the determination of hedge effectiveness and included in current cost of sales. For
option contracts, the hedging relationship is assumed to have no ineffectiveness if the critical terms of the option contract
match the hedged transaction’s terms. Hedge ineffectiveness was not material during the years ended December 31, 2012,
2011 and 2010.
The Company also uses currency forward and option contracts not formally designated as hedges to manage the
currency exchange rate risk associated with the remeasurement of non-functional monetary assets and liabilities. Non-
functional monetary assets and liabilities consist primarily of cash, intercompany loans and payables.
The following table presents the gross notional amount of outstanding derivative instruments (in thousands):
December 31,
2012 2011
Derivative instruments designated as cash flow hedges:
Currency forward contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,000 $ 144,000
Derivative instruments not designated as hedges:
Currency forward contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,934 138,807
At December 31, 2012, approximately $3,172,000 of deferred net gains on both outstanding and matured derivatives
accumulated in other comprehensive income are expected to be reclassified to net income during the next twelve months
as a result of underlying hedged transactions also being recorded in net income. Actual amounts ultimately reclassified to
net income are dependent on U.S. dollar exchange rates in effect against the European euro, Canadian dollar, Japanese yen
and Korean won when outstanding derivative contracts mature.
At December 31, 2012, the Company’s derivative contracts had remaining maturities of approximately one year or
less. The maximum net exposure to any single counterparty, which is generally limited to the aggregate unrealized gain of
all contracts with that counterparty, was less than $4,000,000 at December 31, 2012. All of the Company’s derivative
counterparties have investment grade credit ratings and, as a result, the Company does not require collateral to facilitate
transactions. The Company does not hold derivatives featuring credit-related contingent terms. In addition, the Company
is not a party to any derivative master agreement featuring credit-related contingent terms. Finally, the Company has not
pledged assets or posted collateral as a requirement for entering into or maintaining derivative positions.
The following table presents the balance sheet classification and fair value of derivative instruments (in thousands):