Under Armour 2011 Annual Report Download - page 54

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From time to time, we may elect to use foreign currency forward contracts to reduce the risk from exchange
rate fluctuations on intercompany transactions and projected inventory purchases for our European and Canadian
subsidiaries. In addition, we may elect to enter into foreign currency forward contracts to reduce the risk
associated with foreign currency exchange rate fluctuations on Pound Sterling denominated balance sheet items.
We do not enter into derivative financial instruments for speculative or trading purposes.
Based on the foreign currency forward contracts outstanding as of December 31, 2011, we receive U.S.
Dollars in exchange for Canadian Dollars at a weighted average contractual forward foreign currency exchange
rate of 1.03 CAD per $1.00, U.S. Dollars in exchange for Euros at a weighted average contractual foreign
currency exchange rate of €0.77 per $1.00 and Euros in exchange for Pounds Sterling at a weighted average
contractual foreign currency exchange rate of £0.84 per €1.00. As of December 31, 2011, the notional value of
our outstanding foreign currency forward contracts for our Canadian subsidiary was $51.1 million with contract
maturities of 1 month or less, and the notional value of our outstanding foreign currency forward contracts for
our European subsidiary was $50.0 million with contract maturities of 1 month. As of December 31, 2011, the
notional value of our outstanding foreign currency forward contract used to mitigate the foreign currency
exchange rate fluctuations on Pound Sterling denominated balance sheet items was €10.5 million, or $13.6
million, with a contract maturity 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 other expense, net on the consolidated
statements of income. The fair values of our foreign currency forward contracts were liabilities of $0.7 million
and $0.6 million as of December 31, 2011 and 2010, respectively, and were included in accrued expenses on the
consolidated balance sheet. Refer to Note 10 to the Consolidated Financial Statements for a discussion of the fair
value measurements. Included in other 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) 2011 2010 2009
Unrealized foreign currency exchange rate gains (losses) $(4,027) $(1,280) $ 5,222
Realized foreign currency exchange rate gains (losses) 298 (2,638) (261)
Unrealized derivative losses (31) (809) (1,060)
Realized derivative gains (losses) 1,696 3,549 (4,412)
We enter into foreign currency forward contracts with major financial institutions with investment grade
credit ratings and are 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,
we monitor the credit quality of these financial institutions and consider the risk of counterparty default to be
minimal. Although we have entered into foreign currency forward contracts to minimize some of the impact of
foreign currency exchange rate fluctuations on future cash flows, we cannot be assured that foreign currency
exchange rate fluctuations will not have a material adverse impact on our financial condition and results of
operations.
Inflation
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our
operating results. Although we do not believe that inflation has had a material impact on our financial position or
results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to
maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net
revenues if the selling prices of our products do not increase with these increased costs.
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