This excerpt taken from the HBI 10-Q filed May 11, 2009.
Cash Flow Hedges Foreign Currency Derivatives
The Company uses forward exchange and option contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated transactions, foreign currency-denominated investments, and other known foreign currency exposures. Gains and losses on these contracts are intended to offset losses and gains on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. The effective portion of foreign exchange hedge gains and losses deferred in Accumulated other comprehensive loss is reclassified into earnings as the underlying inventory is sold, using historical inventory turnover rates. The settlement of foreign exchange hedge derivative contracts related to the purchase of inventory or other hedged items are reported in the Condensed Consolidated Statements of Cash Flows as cash flow from operating activities.
Historically, the principal currencies hedged by the Company include the Euro, Mexican peso, Canadian dollar and Japanese yen. Forward exchange contracts mature on the anticipated cash requirement date of the hedged transaction, generally within one year. As of April 4, 2009, the U.S. dollar equivalent of commitments to sell foreign currencies in our foreign currency cash flow hedge derivative portfolio is $35,616, using the exchange rate at the reporting date.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)