Pottery Barn 2013 Annual Report Download - page 71

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from the assessment and measurement of hedge effectiveness and are recorded immediately in other income
(expense), net. As of February 2, 2014, we had foreign currency forward contracts in place to sell Canadian
dollars and buy U.S. dollars totaling $20,000,000, consisting of $16,500,000 designated as cash flow hedges and
$3,500,000 no longer designated as cash flow hedges due to the related inventory purchases having occurred.
Based on the rates in effect as of February 2, 2014, we would expect to reclassify a net gain of approximately
$741,000 from OCI to cost of goods sold over the next 12 months.
In addition, as of February 2, 2014, we had non-designated foreign currency forward contracts in place to sell
Australian dollars and buy U.S. dollars totaling $5,500,000. These contracts allow us to reduce the exchange rate
risk associated with our assets and liabilities denominated in a foreign currency. Any foreign exchange gains
(losses) related to these contracts are recognized in other income (expense), net.
Hedge effectiveness is evaluated prospectively at inception, on an ongoing basis, as well as retrospectively using
regression analysis. Any measureable ineffectiveness of the hedge is recorded in other income (expense), net. No
gain or loss was recognized for cash flow hedges due to hedge ineffectiveness and all cash flow hedges were
deemed effective for assessment purposes as of February 2, 2014.
The effect of derivative instruments in our Consolidated Financial Statements was as follows:
Dollars in thousands
Fiscal 2013
(52 Weeks)
Net gain recognized in OCI $ 870
Net gain reclassified from OCI into cost of goods sold 129
Net foreign exchange loss recognized in other income (expense):
Instruments designated as cash flow hedges(a) (109)
Instruments not designated or de-designated during the period(b) 906
(a) Changes in fair value of the forward contract related to interest charges or “forward points.”
(b) Changes in fair value subsequent to de-designation for instruments no longer designated as cash flow hedges, and changes in
fair value related to instruments not designated as cash flow hedges.
The fair values of our derivative financial instruments are presented below. All fair values were measured using
Level 2 inputs as defined by the fair value hierarchy described in Note N.
Dollars in thousands Balance sheet location Feb. 2, 2014
Derivatives designated as hedging instruments:
Cash flow hedge foreign currency forward contracts Other current assets $ 485
Cash flow hedge foreign currency forward contracts Other current liabilities 0
Total $ 485
Derivatives not designated as hedging instruments:
Foreign currency forward contracts Other current assets $ 222
Foreign currency forward contracts Other current liabilities (40)
Total $ 182
We record all derivative assets and liabilities on a gross basis. They do not meet the balance sheet netting criteria
as discussed in ASC 210, Balance Sheet, because we do not have master netting agreements established with our
derivative counterparties that would allow for net settlement.
57
Form 10-K