Callaway 2015 Annual Report Download - page 107

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F-37
Note 16. Derivatives and Hedging
In the normal course of business, the Company is exposed to gains and losses resulting from fluctuations in foreign
currency exchange rates relating to transactions of its international subsidiaries. As part of its strategy to manage the level of
exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses designated cash flow hedges and
non-designated hedges in the form of foreign currency forward contracts to mitigate the impact of foreign currency translation
on transactions that are denominated primarily in Japanese Yen, British Pounds, Euros, Canadian Dollars, Australian Dollars
and Korean Won.
The Company accounts for its foreign currency forward contracts in accordance with ASC Topic 815. ASC Topic 815
requires the recognition of all derivatives instruments as either assets or liabilities on the balance sheet, the measurement of
those instruments at fair value and the recognition of changes in the fair value of derivatives in earnings in the period of
change, unless the derivative qualifies as a designated cash flow hedge that offsets certain exposures. Certain criteria must be
satisfied in order for derivative financial instruments to be classified and accounted for as a cash flow hedge. Gains and losses
from the remeasurement of qualifying hedges are recorded as a component of other comprehensive income and released into
earnings as a component of cost of goods sold or net sales during the period in which the hedged transaction takes place. Gains
and losses on the ineffective portion of hedges (hedges that do not meet accounting requirements due to ineffectiveness) and
derivatives that are not elected for hedge accounting treatment are immediately recorded in earnings as a component of other
income (expense).
Foreign currency forward contracts are used only to meet the Company’s objectives of minimizing variability in the
Company’s operating results arising from foreign exchange rate movements. The Company does not enter into foreign currency
forward contracts for speculative purposes. The Company utilizes counterparties for its derivative instruments that it believes
are credit-worthy at the time the transactions are entered into and the Company closely monitors the credit ratings of these
counterparties.
The following table summarizes the fair value of the Company's foreign currency forward contracts as well as the location
of the asset and/or liability on the consolidated balance sheets at December 31, 2015 and 2014 (in thousands):
Asset Derivatives
December 31, 2015 December 31, 2014
Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Derivatives designated as cash flow hedging instruments:
Foreign currency forward contracts ................ Other current assets $ 520 Other current assets $ —
Derivatives not designated as hedging instruments:
Foreign currency forward contracts ................ Other current assets $ 160 Other current assets $ 40
Liability Derivatives
December 31, 2015 December 31, 2014
Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Derivatives designated as cash flow hedging instruments:
Foreign currency forward contracts ................ Accounts payable and
accrued expenses $ 296 Accounts payable and
accrued expenses $—
Derivatives not designated as hedging instruments:
Foreign currency forward contracts ................ Accounts payable and
accrued expenses $46
Accounts payable and
accrued expenses $ 246
Cash Flow Hedging Instruments
In January 2015, the Company entered into foreign currency forward contracts designated as qualifying cash flow hedges
to help mitigate the Company's foreign currency exposure on intercompany sales of inventory to its foreign subsidiaries. These
contracts generally mature within 12 to 15 months from their inception. At December 31, 2015, the notional amount of the
Company's foreign currency forward contracts designated as cash flow hedge instruments was approximately $55,938,000.
The Company did not enter into cash flow hedging contracts in 2014. The reporting of gains and losses on these cash flow