Under Armour 2014 Annual Report Download - page 85

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T
hese gains and losses are primarily driven by intercompany transactions and inventory purchases denominate
d
in currencies other than the functional currency of the purchasing entity. From time to time, the Company ma
y
elect to enter into foreign currency forward contracts to reduce the risk associated with foreign currency
exchange rate fluctuations on intercompany transactions and projected inventory purchases for its international
subsidiaries. As the Company expands its international business, it may expand the current hedging program t
o
include additional currency pairs and instruments.
A
s of December 31, 2014, the aggregate notional value of our outstanding foreign currency forward
contracts was
$
123.3 million, which was com
p
rised of Canadian Dollar/U.S. Dollar, Euro/U.S. Dollar, Yen/Euro
,
Mexican Peso/Euro and Pound Sterling/Euro currency pairs with contract maturities ranging from one to eleve
n
months. The majority of the Company’s foreign currency forward contracts are not designated as cash flo
w
hedges, and accordingly, changes in their fair value are recorded in earnings. During 2014, the Company bega
n
entering into foreign currency forward contracts designated as cash flow hedges. For foreign currency forward
contracts designated as cash flow hedges, changes in fair value, excluding any ineffective portion, are recorded in
o
ther comprehensive income until net income is affected by the variability in cash flows of the hedged
transaction. The effective portion is generally released to net income after the maturity of the related derivativ
e
and is classified in the same manner as the underlying exposure. During the year ended December 31, 2014, the
Company reclassified
$
0.4 million from other comprehensive income to cost of goods sold related to foreig
n
currency forward contracts designated as cash flow hedges. The fair values of the Company’s foreign currenc
y
f
orward contracts were assets of
$
806.0 thousand and
$
12.1 thousand as of December 31, 2014 and 2013
,
r
espectively, and were included in prepaid expenses and other current assets on the consolidated balance sheet
.
R
efer to Note 9 for a discussion of the fair value measurements. Included in other ex
p
ense, net were the
f
ollowing amounts related to changes in foreign currency exchange rates and derivative foreign currency forward
contracts
:
Year Ended December 31,
(In t
h
ousan
d
s) 2
0
14 2013 2
0
12
U
nrealized foreign currency exchange rate gains (losses)
$
(11,739)
$
(1,905)
$
2,46
4
R
ealized foreign currency exchange rate gains (losses) 2,247 477 (182
)
U
nrealized derivative gains (losses) 1 13 67
5
R
ealized derivative gains (losses) 3,081 243 (3,030
)
Interest Rate Risk Management
I
n order to maintain liquidity and fund business operations, the Company enters into long term debt
arrangements with various lenders which bear a range of fixed and variable rates of interest. The nature and
amount of the Company’s long-term debt can be expected to vary as a result of future business requirements
,
market conditions and other factors. The Company may elect to enter into interest rate swap contracts to reduce
the impact associated with interest rate fluctuations. The Company utilizes interest rate swap contracts to conver
t
a portion of variable rate debt to fixed rate debt. The contracts pay fixed and receive variable rates of interest
.
T
he interest rate swap contracts are accounted for as cash flow hedges and accordingly, the effective portion of
the changes in their fair value are recorded in other comprehensive income and reclassified into interest expens
e
o
ver the life of the underlying debt obligation.
A
s of December 31, 2014, the aggregate notional value of our outstanding interest rate swap contracts wa
s
$
188.1 million. During the years ended December 31, 2014 and 2013, the Company recorded a
$
1.7 million and
$
0.3 million increase in interest expense, respectively, representing the effective portion of the contracts
r
eclassified from accumulated other com
p
rehensive income. The fair value of the interest rate swa
p
contracts wa
s
a liability of
$
0.6 million as of December 31, 2014, and was included in other long term liabilities on th
e
consolidated balance sheet. The fair value of the interest rate swa
p
contract was an asset of
$
1.1 million as o
f
December 31, 2013 and was included in other long term assets on the consolidated balance sheet
.
7
5