Columbia Sportswear 2002 Annual Report Download - page 53

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COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 16—FINANCIAL RISK MANAGEMENT AND DERIVATIVES
The Company’s foreign currency risk management objective is to protect cash flows resulting from sales,
purchases 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, 2002 and 2001, the Company had approximately $71,978,000 and $53,974,000,
respectively, (notional) in forward exchange contracts. The net unrealized derivative gain (loss) included in the
Company’s liabilities and deferred in other comprehensive income was ($2,544,000) and $844,000 at December
31, 2002 and 2001, respectively.
The counterparties to derivative transactions are major financial institutions with high 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, 2002 and 2001. 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.
NOTE 17—SUBSEQUENT EVENT
On March 13, 2003, the Company entered into a merger agreement to acquire Mountain Hardwear, Inc.
(“Mountain Hardwear”) for aggregate consideration of approximately $36 million, including approximately $30
million in cash and $6 million of debt assumption. The merger is subject to approval by the shareholders of
Mountain Hardwear and other customary closing conditions and is expected to close on March 31, 2003.
Mountain Hardwear, which is based in Richmond, California, designs, develops and markets technically
advanced equipment and apparel for outdoor enthusiasts and professionals.
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