Under Armour 2008 Annual Report Download - page 80

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Effective June 1, 2007, the Company’s Board of Directors approved the Under Armour, Inc. Deferred
Compensation Plan (the “Plan”). The Plan allows a select group of management or highly compensated
employees, as approved by the Compensation Committee, to make an annual base salary and/or bonus deferral
for each year. Compensation deferrals began for participating employees on January 1, 2008. As of
December 31, 2008, the Plan obligation was $2.2 million and was included in other long term liabilities on the
consolidated balance sheet.
The Company established a rabbi trust (the “Rabbi Trust”) during the three months ended March 31, 2008,
to fund obligations to participants in the Plan. As of December 31, 2008, the assets held in the Rabbi Trust were
trust owned life insurance policies (“TOLI”) with a cash-surrender value of $2.2 million. These assets are
consolidated in accordance with Emerging Issues Task Force (“EITF”) 97-14, Accounting for Deferred
Compensation Agreements Where Amounts Earned Are Held in a Rabbi Trust and Invested, and are included in
other non-current assets on the consolidated balance sheet. Refer to Note 9 for a discussion of the fair value
measurements of the assets held in the Rabbi Trust and the Plan obligations.
14. Foreign Currency Risk Management and Derivatives
The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates
primarily relating to transactions generated by its international subsidiaries in currencies other than their local
currencies, primarily driven by inter-company transactions. In August 2007, the Company began using foreign
currency forward contracts in order to reduce the risk associated with foreign currency exchange rate fluctuations
on projected inventory purchases and inter-company transactions for its Canadian subsidiary. Beginning in
December 2008, the Company began using foreign currency forward contracts in order to reduce the risk
associated with foreign currency exchange rate fluctuations on inter-company transactions for its European
subsidiary.
As of December 31, 2008, the notional value of the Company’s outstanding foreign currency forward
contracts used to mitigate the foreign currency exchange rate fluctuations on its Canadian subsidiary’s projected
inventory purchases and inter-company transactions was approximately $17.4 million with contract maturities of
1 to 6 months and on its European’s subsidiary’s projected inter-company transactions was approximately $26.6
million with contract maturities of 1 month. The foreign currency forward contracts are not designated as cash
flow hedges, and accordingly, changes in their fair value are recorded in earnings. As of December 31, 2008, the
fair value of the Company’s foreign currency forward contracts was $1.2 million which is included in prepaid
expenses and other current assets on the consolidated balance sheet. Refer to Note 9 for a discussion of the fair
value measurements. Included in other income (expense), net were the following amounts related to changes in
foreign currency exchange rates and derivative foreign currency forward contracts:
Year Ended December 31,
(In thousands) 2008 2007 2006
Unrealized foreign currency exchange rate gains (losses) $(5,459) $2,567 $(161)
Realized foreign currency exchange rate gains (losses) (2,166) 174 520
Unrealized derivative gains (losses) 1,650 (243) —
Realized derivative gains (losses) (204) (469) —
The Company enters into foreign currency forward contracts with major financial institutions with
investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial
institutions. This credit risk is generally limited to the unrealized gains in the foreign currency forward contracts.
However, the Company monitors the credit quality of these financial institutions and considers the risk of
counterparty default to be minimal.
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