Under Armour 2015 Annual Report Download - page 87

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As of December 31, 2015, the aggregate notional value of the Company’s outstanding foreign currency
contracts was $468.1 million, which was comprised 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 eleven
months. A portion of the Company’s foreign currency forward contracts are not designated as cash flow hedges,
and accordingly, changes in their fair value are recorded in earnings. During 2014, the Company began entering
into foreign currency contracts designated as cash flow hedges. For foreign currency contracts designated as cash
flow hedges, changes in fair value, excluding any ineffective portion, are recorded in other 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 derivative and is classified in the same
manner as the underlying exposure. During the years ended December 31, 2015 and 2014, the Company
reclassified $3.5 million and $0.4 million from other comprehensive income to cost of goods sold related to
foreign currency contracts designated as cash flow hedges, respectively. The fair values of the Company’s
foreign currency contracts were assets of $3.8 million and $0.8 million as of December 31, 2015 and 2014,
respectively, and were 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 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) 2015 2014 2013
Unrealized foreign currency exchange rate gains (losses) $(33,359) $(11,739) $(1,905)
Realized foreign currency exchange rate gains (losses) 7,643 2,247 477
Unrealized derivative gains (losses) 388 1 13
Realized derivative gains (losses) 16,404 3,081 243
Interest Rate Risk Management
In 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 convert
a portion of variable rate debt to fixed rate debt. The contracts pay fixed and receive variable rates of interest.
The 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 expense
over the life of the underlying debt obligation. Refer to Note 6 for a discussion of long term debt.
As of December 31, 2015, the notional value of our outstanding interest rate swap contracts was $170.7
million. During the years ended December 31, 2015 and 2014, the Company recorded a $2.7 million and $1.7
million increase in interest expense, respectively, representing the effective portion of the contracts reclassified
from accumulated other comprehensive income. The fair value of the interest rate swap contracts was a liability
of $1.5 million and $0.6 million as of December 31, 2015 and December 31, 2014, respectively, and were
included in other long term liabilities on the consolidated balance sheet.
The Company enters into derivative 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.
15. Related Party Transactions
The Company has an operating lease agreement with an entity controlled by the Company’s CEO to lease an
aircraft for business purposes. The Company paid $2.0 million, $1.8 million and $1.0 million in lease payments
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