þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 52-1990078 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1020 Hull Street Baltimore, Maryland 21230 | (410) 454-6428 | |
(Address of principal executive offices) (Zip Code) | (Registrant’s telephone number, including area code) |
Large accelerated filer | þ | Accelerated filer | ¨ | |
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Emerging growth company | ¨ |
PART I. | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II. | ||
Item 1. | ||
Item 1A. | ||
Item 6. | ||
March 31, 2017 | December 31, 2016 | March 31, 2016 | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 172,128 | $ | 250,470 | $ | 157,001 | |||||
Accounts receivable, net | 629,235 | 622,685 | 566,286 | ||||||||
Inventories | 901,613 | 917,491 | 834,287 | ||||||||
Prepaid expenses and other current assets | 203,052 | 174,507 | 211,209 | ||||||||
Total current assets | 1,906,028 | 1,965,153 | 1,768,783 | ||||||||
Property and equipment, net | 830,539 | 804,211 | 601,910 | ||||||||
Goodwill | 571,381 | 563,591 | 588,895 | ||||||||
Intangible assets, net | 61,986 | 64,310 | 73,217 | ||||||||
Deferred income taxes | 121,108 | 136,862 | 92,230 | ||||||||
Other long term assets | 86,118 | 110,204 | 93,089 | ||||||||
Total assets | $ | 3,577,160 | $ | 3,644,331 | $ | 3,218,124 | |||||
Liabilities and Stockholders’ Equity | |||||||||||
Current liabilities | |||||||||||
Revolving credit facility, current | $ | 50,000 | $ | — | $ | 140,000 | |||||
Accounts payable | 294,857 | 409,679 | 184,243 | ||||||||
Accrued expenses | 217,310 | 208,750 | 224,076 | ||||||||
Current maturities of long term debt | 27,000 | 27,000 | 27,000 | ||||||||
Other current liabilities | 38,372 | 40,387 | 30,581 | ||||||||
Total current liabilities | 627,539 | 685,816 | 605,900 | ||||||||
Long term debt, net of current maturities | 784,052 | 790,388 | 217,525 | ||||||||
Revolving credit facility, long term | — | — | 550,000 | ||||||||
Other long term liabilities | 145,536 | 137,227 | 103,382 | ||||||||
Total liabilities | 1,557,127 | 1,613,431 | 1,476,807 | ||||||||
Commitments and contingencies (see Note 4) | |||||||||||
Stockholders’ equity | |||||||||||
Class A Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of March 31, 2017, December 31, 2016 and March 31, 2016; 184,667,304 shares issued and outstanding as of March 31, 2017, 183,814,911 shares issued and outstanding as of December 31, 2016, and 183,141,109 shares issued and outstanding as of March 31, 2016. | 62 | 61 | 61 | ||||||||
Class B Convertible Common Stock, $0.0003 1/3 par value; 34,450,000 shares authorized, issued and outstanding as of March 31, 2017, December 31, 2016 and March 31, 2016. | 11 | 11 | 12 | ||||||||
Class C Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of March 31, 2017, December 31, 2016 and March 31, 2016; 221,148,991 shares issued and outstanding as of March 31, 2017, 220,174,048 shares issued and outstanding as of December 31, 2016, and 217,591,109 shares issued and outstanding as of March 31, 2016. | 74 | 73 | 73 | ||||||||
Additional paid-in capital | 835,681 | 823,484 | 702,972 | ||||||||
Retained earnings | 1,232,416 | 1,259,414 | 1,082,027 | ||||||||
Accumulated other comprehensive loss | (48,211 | ) | (52,143 | ) | (43,828 | ) | |||||
Total stockholders’ equity | 2,020,033 | 2,030,900 | 1,741,317 | ||||||||
Total liabilities and stockholders’ equity | $ | 3,577,160 | $ | 3,644,331 | $ | 3,218,124 |
Three months ended March 31, | |||||||
2017 | 2016 | ||||||
Net revenues | $ | 1,117,331 | $ | 1,047,702 | |||
Cost of goods sold | 611,908 | 567,066 | |||||
Gross profit | 505,423 | 480,636 | |||||
Selling, general and administrative expenses | 497,887 | 445,753 | |||||
Income from operations | 7,536 | 34,883 | |||||
Interest expense, net | (7,820 | ) | (4,532 | ) | |||
Other income, net | 2,570 | 2,702 | |||||
Income before income taxes | 2,286 | 33,053 | |||||
Provision for income taxes | 4,558 | 13,873 | |||||
Net income (loss) | $ | (2,272 | ) | $ | 19,180 | ||
Basic net income (loss) per share of Class A, B and C common stock | $ | (0.01 | ) | $ | 0.04 | ||
Diluted net income (loss) per share of Class A, B and C common stock | $ | (0.01 | ) | $ | 0.04 | ||
Weighted average common shares outstanding Class A, B and C common stock | |||||||
Basic | 439,360 | 433,626 | |||||
Diluted | 439,360 | 443,260 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
Net income (loss) | $ | (2,272 | ) | $ | 19,180 | ||
Other comprehensive income (loss): | |||||||
Foreign currency translation adjustment | 9,819 | 7,442 | |||||
Unrealized loss on cash flow hedge, net of tax of $(2,399) and $(2,767) for the three months ended March 31, 2017 and 2016. | (6,894 | ) | (6,257 | ) | |||
Gain on intra-entity foreign currency transactions | 1,007 | — | |||||
Total other comprehensive income | 3,932 | 1,185 | |||||
Comprehensive income | $ | 1,660 | $ | 20,365 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities | |||||||
Net income (loss) | $ | (2,272 | ) | $ | 19,180 | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities | |||||||
Depreciation and amortization | 41,013 | 32,021 | |||||
Unrealized foreign currency exchange rate gains | (8,313 | ) | (11,248 | ) | |||
Loss on disposal of property and equipment | 556 | 384 | |||||
Amortization of bond premium | 63 | — | |||||
Stock-based compensation | 12,082 | 14,403 | |||||
Excess tax benefit (deficiency) from stock-based compensation arrangements | (1,258 | ) | 27,058 | ||||
Deferred income taxes | 15,905 | 2,724 | |||||
Changes in reserves and allowances | (21,187 | ) | 12,657 | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 21,261 | (136,990 | ) | ||||
Inventories | 19,084 | (45,958 | ) | ||||
Prepaid expenses and other assets | (7,598 | ) | (15,351 | ) | |||
Accounts payable | (90,982 | ) | (976 | ) | |||
Accrued expenses and other liabilities | 7,253 | 22,312 | |||||
Income taxes payable and receivable | (19,169 | ) | (47,748 | ) | |||
Net cash used in operating activities | (33,562 | ) | (127,532 | ) | |||
Cash flows from investing activities | |||||||
Purchases of property and equipment | (91,790 | ) | (104,573 | ) | |||
Purchases of available-for-sale securities | — | (19,997 | ) | ||||
Sales of available-for-sale securities | — | 21,414 | |||||
Net cash used in investing activities | (91,790 | ) | (103,156 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from long term debt and revolving credit facility | 200,000 | 415,000 | |||||
Payments on long term debt and revolving credit facility | (156,750 | ) | (145,500 | ) | |||
Employee taxes paid for shares withheld for income taxes | (2,474 | ) | (13,685 | ) | |||
Proceeds from exercise of stock options and other stock issuances | 2,782 | 3,954 | |||||
Payments of debt financing costs | — | (1,258 | ) | ||||
Net cash provided by financing activities | 43,558 | 258,511 | |||||
Effect of exchange rate changes on cash and cash equivalents | 3,452 | (674 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (78,342 | ) | 27,149 | ||||
Cash and cash equivalents | |||||||
Beginning of period | 250,470 | 129,852 | |||||
End of period | $ | 172,128 | $ | 157,001 | |||
Non-cash investing and financing activities | |||||||
Change in accrual for property and equipment | (25,567 | ) | (13,814 | ) |
Level 1: | Observable inputs such as quoted prices in active markets; |
Level 2: | Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |
Level 3: | Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
March 31, 2017 | December 31, 2016 | March 31, 2016 | ||||||||||||||||||||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||
Available-for-sale securities | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 5,109 | $ | — | $ | — | ||||||||||||||||||
Derivative foreign currency contracts (see Note 7) | — | 5,801 | — | — | 15,238 | — | — | (1,122 | ) | — | ||||||||||||||||||||||||||
Interest rate swap contracts (see Note 7) | — | 162 | — | — | (420 | ) | — | — | (4,282 | ) | — | |||||||||||||||||||||||||
TOLI policies held by the Rabbi Trust | — | 5,106 | — | — | 4,880 | — | — | 4,568 | — | |||||||||||||||||||||||||||
Deferred Compensation Plan obligations | — | (8,152 | ) | — | — | (7,023 | ) | — | — | (6,084 | ) | — |
Three Months Ended March 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Unrealized foreign currency exchange rate gains | $ | 8,313 | $ | 11,248 | |||
Realized foreign currency exchange rate gains (losses) | (272 | ) | 597 | ||||
Unrealized derivative gains (losses) | (704 | ) | 211 | ||||
Realized derivative losses | (6,366 | ) | (9,986 | ) |
Three Months Ended March 31, | |||||||
(In thousands, except per share amounts) | 2017 | 2016 | |||||
Numerator | |||||||
Net income (loss) | $ | (2,272 | ) | $ | 19,180 | ||
Denominator | |||||||
Weighted average common shares outstanding Class A, B, and C | 439,360 | 433,626 | |||||
Effect of dilutive securities Class A , B and C | — | 9,634 | |||||
Weighted average common shares and dilutive securities outstanding Class A, B and C | 439,360 | 443,260 | |||||
Basic earnings per share Class A, B and C | $ | (0.01 | ) | $ | 0.04 | ||
Dilutive earnings per share Class A, B and C | $ | (0.01 | ) | $ | 0.04 |
Three Months Ended March 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Net revenues | |||||||
North America | $ | 871,271 | $ | 880,595 | |||
EMEA | 102,855 | 66,267 | |||||
Asia-Pacific | 85,818 | 53,622 | |||||
Latin America | 38,454 | 29,467 | |||||
Connected Fitness | 18,933 | 18,501 | |||||
Intersegment eliminations | — | (750 | ) | ||||
Total net revenues | $ | 1,117,331 | $ | 1,047,702 |
Three Months Ended March 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Operating income (loss) | |||||||
North America | $ | 3,714 | $ | 40,095 | |||
EMEA | 1,629 | 2,921 | |||||
Asia-Pacific | 19,628 | 17,335 | |||||
Latin America | (7,859 | ) | (9,007 | ) | |||
Connected Fitness | (9,576 | ) | (16,461 | ) | |||
Total operating income | 7,536 | 34,883 | |||||
Interest expense, net | (7,820 | ) | (4,532 | ) | |||
Other income, net | 2,570 | 2,702 | |||||
Income before income taxes | $ | 2,286 | $ | 33,053 |
Three Months Ended March 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Apparel | $ | 715,437 | $ | 666,571 | |||
Footwear | 269,659 | 264,246 | |||||
Accessories | 89,097 | 79,701 | |||||
Total net sales | 1,074,193 | 1,010,518 | |||||
License revenues | 24,205 | 19,433 | |||||
Connected Fitness | 18,933 | 18,501 | |||||
Intersegment eliminations | — | (750 | ) | ||||
Total net revenues | $ | 1,117,331 | $ | 1,047,702 |
• | changes in general economic or market conditions that could affect overall consumer spending or our industry; |
• | changes to the financial health of our customers; |
• | our ability to effectively drive operational efficiency in our business; |
• | our ability to effectively manage our growth and a more complex global business; |
• | our ability to comply with existing trade and other regulations, and the potential impact of new trade and tax regulations on our profitability; |
• | our ability to successfully manage or realize expected results from acquisitions and other significant investments or capital expenditures; |
• | our ability to effectively develop and launch new, innovative and updated products; |
• | fluctuations in the costs of our products; |
• | our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; |
• | increased competition causing us to lose market share or reduce the prices of our products or to increase significantly our marketing efforts; |
• | loss of key suppliers or manufacturers or failure of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner, including due to port disruptions; |
• | our ability to further expand our business globally and to drive brand awareness and consumer acceptance of our products in other countries; |
• | the availability, integration and effective operation of information systems and other technology, as well as any potential interruption of such systems or technology, including risks related to the implementation of our new global operating and financial reporting information technology system; |
• | our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results; |
• | risks related to foreign currency exchange rate fluctuations; |
• | our ability to effectively market and maintain a positive brand image; |
• | risks related to data security or privacy breaches; |
• | our ability to raise additional capital required to grow our business on terms acceptable to us; |
• | our potential exposure to litigation and other proceedings; and |
• | our ability to attract key talent and retain the services of senior management and key employees. |
• | Net revenues increased 6.6% compared to 2016. |
• | Wholesale and Direct-to-Consumer revenues increased 3.8% and 13.2%, respectively. |
• | Apparel revenue increased 7.3% compared to the prior year, with footwear and accessories revenue increasing 2.0% and 11.8%, respectively. |
• | Revenue in our North America segment decreased 1.1%. Revenue in our Asia-Pacific, EMEA and Latin America segments grew 60.0%, 55.2% and 30.5%, respectively, with 2.3% growth in our Connected Fitness segment. |
• | Selling, general and administrative expense increased 11.7% when compared to 2016. |
• | Gross margin decreased 70 basis points when compared to 2016. |
Three Months Ended March 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Net revenues | $ | 1,117,331 | $ | 1,047,702 | |||
Cost of goods sold | 611,908 | 567,066 | |||||
Gross profit | 505,423 | 480,636 | |||||
Selling, general and administrative expenses | 497,887 | 445,753 | |||||
Income from operations | 7,536 | 34,883 | |||||
Interest expense, net | (7,820 | ) | (4,532 | ) | |||
Other income, net | 2,570 | 2,702 | |||||
Income before income taxes | 2,286 | 33,053 | |||||
Provision for income taxes | 4,558 | 13,873 | |||||
Net income (loss) | $ | (2,272 | ) | $ | 19,180 |
Three Months Ended March 31, | |||||
(As a percentage of net revenues) | 2017 | 2016 | |||
Net revenues | 100.0 | % | 100.0 | % | |
Cost of goods sold | 54.8 | % | 54.1 | % | |
Gross profit | 45.2 | % | 45.9 | % | |
Selling, general and administrative expenses | 44.6 | % | 42.5 | % | |
Income from operations | 0.7 | % | 3.4 | % | |
Interest expense, net | (0.7 | )% | (0.4 | )% | |
Other income, net | 0.2 | % | 0.2 | % | |
Income before income taxes | 0.2 | % | 3.2 | % | |
Provision for income taxes | 0.4 | % | 1.4 | % | |
Net income (loss) | (0.2 | )% | 1.8 | % |
Three Months Ended March 31, | ||||||||||||||
(In thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
Apparel | $ | 715,437 | $ | 666,571 | $ | 48,866 | 7.3 | % | ||||||
Footwear | 269,659 | 264,246 | 5,413 | 2.0 | % | |||||||||
Accessories | 89,097 | 79,701 | 9,396 | 11.8 | % | |||||||||
Total net sales | 1,074,193 | 1,010,518 | 63,675 | 6.3 | % | |||||||||
License revenues | 24,205 | 19,433 | 4,772 | 24.6 | % | |||||||||
Connected Fitness | 18,933 | 18,501 | 432 | 2.3 | % | |||||||||
Intersegment Eliminations | — | (750 | ) | 750 | (100.0 | )% | ||||||||
Total net revenues | $ | 1,117,331 | $ | 1,047,702 | $ | 69,629 | 6.6 | % |
• | Apparel unit sales growth in multiple categories led by training, golf and team sports; |
• | Footwear unit sales growth led by running, golf and women's training; and |
• | Accessories unit sales growth led by men's training and running. |
• | approximate 160 basis point decrease driven by our inventory management strategies, which we expect to continue for the remainder of the year on a more limited basis; |
• | approximate 20 basis point decrease due to our international business representing a higher percentage of sales, which we expect to continue for the remainder of the year; and |
• | approximate 20 basis point decrease driven by foreign exchange rates, which we expect to continue through the remainder of the year. |
• | approximate 140 basis point increase driven by favorable sales channel mix primarily due to lower liquidations as a percentage of total sales. |
• | Marketing costs increased $5.8 million to $128.3 million for the three months ended March 31, 2017 from $122.5 million for the same period in 2016. This increase was primarily due to increased marketing in connection with the growth of our international business. As a percentage of net revenues, marketing costs decreased to 11.5% for the three months ended March 31, 2017 from 11.7% for the same period in 2016. |
• | Other costs increased $46.3 million to $369.6 million for the three months ended March 31, 2017 from $323.3 million for the same period in 2016. The increase was driven by higher personnel and other costs incurred for both the continued expansion of our direct to consumer distribution channel, including increased costs related to retail stores, distribution facilities and our e-commerce business. As a percentage of net revenues, other costs increased to 33.1% for the three months ended March 31, 2017 from 30.9% for the same period in 2016. |
Three Months Ended March 31, | ||||||||||||||
(In thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
North America | $ | 871,271 | $ | 880,595 | $ | (9,324 | ) | (1.1 | )% | |||||
EMEA | 102,855 | 66,267 | 36,588 | 55.2 | % | |||||||||
Asia-Pacific | 85,818 | 53,622 | 32,196 | 60.0 | % | |||||||||
Latin America | 38,454 | 29,467 | 8,987 | 30.5 | % | |||||||||
Connected Fitness | 18,933 | 18,501 | 432 | 2.3 | % | |||||||||
Intersegment eliminations | — | (750 | ) | 750 | (100.0 | )% | ||||||||
Total net revenues | $ | 1,117,331 | $ | 1,047,702 | $ | 69,629 | 6.6 | % |
• | Net revenues in our North America operating segment decreased $9.3 million to $871.3 million for the three months ended March 31, 2017 from $880.6 million for the same period in 2016 primarily due to the highly promotional retail environment in the United States and the loss of revenue from wholesale customers that filed for bankruptcy protection which was only partially offset by revenue from new wholesale customers. |
• | Net revenues in our EMEA operating segment increased $36.6 million to $102.9 million for the three months ended March 31, 2017 from $66.3 million for the same period in 2016 primarily due to unit sales growth to wholesale partners in Germany and the United Kingdom. |
• | Net revenues in our Asia-Pacific operating segment increased $32.2 million to $85.8 million for the three months ended March 31, 2017 from $53.6 million for the same period in 2016 primarily due to store growth in China and Korea and increased unit sales growth to our distribution partners in Taiwan and Southeast Asia. |
• | Net revenues in our Latin America operating segment increased $9.0 million to $38.5 million for the three months ended March 31, 2017 from $29.5 million for the same period in 2016 primarily due to unit sales growth to wholesale partners in Mexico and Chile. |
• | Net revenues in our Connected Fitness operating segment increased $0.4 million to $18.9 million from $18.5 million for the same period in 2016 primarily driven by an increase in paid subscribers partially offset by a decrease in advertising on our fitness applications. |
Three Months Ended March 31, | ||||||||||||||
(In thousands) | 2017 | 2016 | $ Change | % Change | ||||||||||
North America | $ | 3,714 | $ | 40,095 | $ | (36,381 | ) | (90.7 | )% | |||||
EMEA | 1,629 | 2,921 | (1,292 | ) | (44.2 | )% | ||||||||
Asia-Pacific | 19,628 | 17,335 | 2,293 | 13.2 | % | |||||||||
Latin America | (7,859 | ) | (9,007 | ) | 1,148 | 12.7 | % | |||||||
Connected Fitness | (9,576 | ) | (16,461 | ) | 6,885 | 41.8 | % | |||||||
Total operating income | $ | 7,536 | $ | 34,883 | $ | (27,347 | ) | (78.4 | )% |
• | Operating income in our North America operating segment decreased $36.4 million to $3.7 million for the three months ended March 31, 2017 from $40.1 million for the same period in 2016 primarily due to decreases in net sales and gross margin discussed above in the Consolidated Results of Operations and investments in our direct to consumer distribution channel, including increased costs related to retail stores, distribution facilities and our e-commerce business. |
• | Operating income in our EMEA operating segment decreased $1.3 million to $1.6 million for the three months ended March 31, 2017 from $2.9 million for the same period in 2016 primarily due to costs related to a distributor termination. This decrease was partially offset by sales growth discussed above. |
• | Operating income in our Asia-Pacific operating segment increased $2.3 million to $19.6 million for the three months ended March 31, 2017 from $17.3 million for the same period in 2016 primarily due to sales growth discussed above. This increase was offset by investments in our direct-to-consumer business and entry into new territories. |
• | Operating loss in our Latin America operating segment decreased $1.1 million to $7.9 million for the three months ended March 31, 2017 from $9.0 million for the same period in 2016 primarily due to sales growth discussed above. |
• | Operating loss in our Connected Fitness segment decreased $6.9 million to $9.6 million for the three months ended March 31, 2017 from $16.5 million for the same period in 2016 primarily driven by the movement of expenses resulting from a strategic shift in headcount supporting our global business to our North America segment. |
Three Months Ended March 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Net cash provided by (used in): | |||||||
Operating activities | $ | (33,562 | ) | $ | (127,532 | ) | |
Investing activities | (91,790 | ) | (103,156 | ) | |||
Financing activities | 43,558 | 258,511 | |||||
Effect of exchange rate changes on cash and cash equivalents | 3,452 | (674 | ) | ||||
Net increase (decrease) in cash and cash equivalents | $ | (78,342 | ) | $ | 27,149 |
• | an increase in the change in accounts receivable of $158.3 million in the current period compared to the prior period, primarily due to the timing of cash collections and a higher proportion of sales to our international customers with longer payment terms in the prior period; partially offset by |
• | a decrease in the change in accounts payable of $90.0 million in the current period compared to the prior period, primarily due to the timing of inventory payments. |
Exhibit No. | |
10.01 | Under Armour, Inc. 2017 Non-Employee Director Compensation Plan. |
31.01 | Section 302 Chief Executive Officer Certification |
31.02 | Section 302 Chief Financial Officer Certification |
32.01 | Section 906 Chief Executive Officer Certification |
32.02 | Section 906 Chief Financial Officer Certification |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
UNDER ARMOUR, INC. | ||
By: | /s/ DAVID E. BERGMAN | |
David E. Bergman | ||
Chief Financial Officer |
Section 1 | Interpretation |
1.1 | Purposes |
(a) | to develop a mechanism to compensate Non-Employee Directors for their services to the Company; and |
(b) | to provide a financial incentive that will help the Company to attract and retain highly qualified individuals to serve as Non-Employee Directors of the Company. |
(a) | “Affiliate” means a subsidiary, division or affiliate of the Company, as determined in accordance with Section 414(b), (c) or (m) of the Code. |
(b) | “Award Agreement” means an award agreement by and between a Non-Employee Director and the Company, entered into pursuant to the terms of the Omnibus Incentive Plan. |
(c) | “Audit Committee” means the Audit Committee of the Board of Directors. |
(d) | “Board” or “Board of Directors” means those individuals who serve from time to time as the Board of Directors of the Company. |
(e) | “Change in Control” has the meaning given to it in the Omnibus Incentive Plan. |
(f) | “Code” means the United States Internal Revenue Code of 1986, as amended. |
(g) | “Committee” means the committee of the Board of Directors to which the Board of Directors has delegated power to act under or pursuant to the provisions of the Plan, initially the Compensation Committee. |
(h) | “Committee Chair” means the individual who chairs a committee or a sub-committee of the Board to which the Board has delegated authority with respect to certain functions, including the Audit Committee, the Compensation Committee, Corporate Governance Committee and the Finance and Capital Planning Committee and any other committee or sub-committee established by the Board. |
(i) | “Compensation Committee” means the Compensation Committee of the Board of Directors. |
(j) | “Company” means Under Armour, Inc., a Maryland corporation, and any successor to all or substantially all of its assets or business. |
(l) | “Deferred Stock Unit” means an interest credited under the DSU Plan. Each DSU represents the Company’s obligation to issue one share of common stock in accordance with the terms of the DSU Plan. |
(m) | “DSU Plan” means the Under Armour, Inc. 2006 Non-Employee Directors Deferred Stock Unit Plan, as amended and restated from time to time. |
(n) | “Effective Date” of the Plan is January 1, 2017. |
(o) | “Finance and Capital Planning Committee” means the Finance and Capital Planning Committee of the Board of Directors. |
(p) | “Grant Date” means the date of an annual shareholder meeting; provided however, that with respect to an Initial Restricted Stock Unit Grant made to a Non-Employee Director in accordance with Section 4.1 below, “Grant Date” means the first day of the month coincident with or next following the date the Non-Employee Director commences Board service. |
(q) | “Initial Restricted Stock Unit Grant” means an equity grant made under Section 4.1 of this Plan. |
(r) | “Lead Director” Independent Director appointed by the Board to act as liaison between Directors, CEO and other members of Management. |
(s) | “Corporate Governance Committee” means the Corporate Governance Committee of the Board of Directors. |
(t) | “Non-Employee Director” means a member of the Board of Directors who is not an employee of the Company or any Affiliate of the Company. |
(u) | “Omnibus Incentive Plan” means the Under Armour, Inc. 2005 Omnibus Long-Term Incentive Plan, as amended and restated from time to time. |
(v) | “Plan” means this Under Armour, Inc. 2017 Non-Employee Director Compensation Plan, as amended and restated from time to time. |
(w) | “Plan Year” means the twelve month period beginning on January 1 and ending on December 31 of each year. |
(x) | “RSU” means a restricted stock unit granted under the Omnibus Incentive Plan. |
(y) | “Quarter” means each Company fiscal calendar quarter, which begins on January 1, April 1, July 1, and October 1 of each year. |
(z) | “Separation from Service” or “Separate from Service” means a Non-Employee Director ceasing to be a member of the Board for any reason, determined in accordance with Code Section 409A and the guidance issued thereunder, including Proposed Treas. Reg. Section 1.409A-1(h) (or any successor rule or regulation thereto). |
Section 2 | Eligibility |
Section 3 | Compensation |
3.1 | Annual Retainer |
(a) | Subject to the other provisions of this Plan, each Non-Employee Director shall receive an annual retainer of Seventy-Five Thousand Dollars ($75,000) in installments of Eighteen Thousand Seven Hundred Fifty Dollars ($18,750) each Quarter, paid in arrears. |
(b) | Non-Employee Directors who Separate from Service during a Quarter shall receive a pro-rata payment for that Quarter based on the number of days of service as a Board member in the Quarter. |
(c) | A Non-Employee Director may elect to defer all of the value of the Annual Retainer as DSUs under the DSU Plan, in accordance with its terms. |
3.2 | Annual Retainer for Lead Director |
(a) | The Lead Directors shall receive an annual retainer of Twenty Five Thousand Dollars ($25,000) in installments of Six Thousand Two Hundred Fifty Dollars ($6,250) each Quarter, paid in arrears. |
(b) | Lead Director may elect to defer all of the value of the Annual Retainer for Lead Director as DSUs under the DSU Plan, in accordance with its terms. |
3.3 | Expenses |
3.4 | Committee Chairs |
(a) | In addition to fees otherwise paid hereunder, each Committee Chair shall be paid a Committee Chair annual retainer, as follows: |
Committee Chair | Annual Retainer |
Audit Committee | $15,000 |
Compensation Committee | $12,500 |
Corporate Governance Committee | $10,000 |
Finance and Capital Planning Committee | $10,000 |
(b) | Whether the Committee Chair of an additional committee or sub-committee established by the Board is entitled to a Committee Chair annual retainer, and the |
(c) | Committee Chair annual retainer fees shall be paid in equal Quarterly payments, in arrears, and subject to the rules set forth at Section 3.1 (b) above. |
(d) | A Non-Employee Director may elect to defer all of the value of the Committee Chair annual retainer as DSUs under the DSU Plan, in accordance with its terms. |
Section 4 | Equity Grants |
4.1 | Initial Restricted Stock Unit Grant |
(a) | On the Grant Date applicable to Initial Restricted Stock Unit Grants, each new Non-Employee Director shall be granted an RSU with an equivalent value as of the Grant Date of One Hundred Thousand Dollars ($100,000). |
(b) | RSUs will be granted under and pursuant to the terms of the Omnibus Incentive Plan and subject to the terms of an Award Agreement by and between each Non-Employee Director and the Company. Each RSU shall vest 1/3rd annually while the Non-Employee Director continues to serve as a Board member, starting with the first anniversary of the Grant Date. Upon vesting, each RSU shall be settled in the form of a DSU, and shall be deferred in accordance with the terms of the DSU Plan. DSU interests shall be settled in the form of Company stock on the date that is six (6) months from the date the Board member incurs a Separation from Service and otherwise in accordance with Section 4 of the DSU Plan. |
4.2 | Annual Restricted Stock Unit Grant |
4.3 | Rules Applicable to Equity Grants |
(a) | The Board, in its discretion, shall determine whether and to what extent a grant under this Section 4.2 to a Non-Employee Director who begins service as a Board member other than at an annual shareholders meeting shall be prorated for the first year of Board service. |
Section 5 | General |
5.1 | Successors and Assigns |
5.2 | Amendment or Termination of the Plan |
5.3 | Limitations on Rights of Non-Employee Directors |
(a) | Any and all of the rights of the Non-Employee Directors respecting payments under the Plan shall not be transferable or assignable other than by will or the laws of descent and distribution, nor shall they be pledged, encumbered or charged, and any attempt to do so shall be void. |
(b) | Any liability of the Company to any Non-Employee Director with respect to receipt of payment under this Plan shall be based solely upon contractual obligations created |
5.4 | Compliance with Law |
5.5 | Governing Law |
5.6 | Administration |
/s/ KEVIN A. PLANK | |
Kevin A. Plank | |
Chairman of the Board of Directors and Chief Executive Officer |
/s/ DAVID E. BERGMAN | |
David E. Bergman | |
Chief Financial Officer |
/s/ KEVIN A. PLANK | |
Kevin A. Plank | |
Chairman of the Board of Directors and Chief Executive Officer |
/s/ DAVID E. BERGMAN | |
David E. Bergman | |
Chief Financial Officer |
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Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2016 |
---|---|---|---|
Class A Common Stock [Member] | |||
Common Stock, Par or Stated Value Per Share | $ 0.0003 | $ 0.0003 | $ 0.0003 |
Common Stock, Shares, Outstanding | 183,814,911 | 181,629,641 | 180,115,884 |
Common Stock, Shares Authorized | 400,000,000 | 400,000,000 | 400,000,000 |
Common Stock, Shares, Issued | 183,814,911 | 181,629,641 | 180,115,884 |
Class B Convertible Common Stock [Member] | |||
Common Stock, Par or Stated Value Per Share | $ 0.0003 | $ 0.0003 | $ 0.0003 |
Common Stock, Shares, Outstanding | 34,450,000 | 34,450,000 | 35,700,000 |
Common Stock, Shares Authorized | 34,450,000 | 34,450,000 | 35,700,000 |
Common Stock, Shares, Issued | 34,450,000 | 34,450,000 | 35,700,000 |
Common Class C [Member] | |||
Common Stock, Par or Stated Value Per Share | $ 0.0003 | $ 0.0003 | $ 0.0003 |
Common Stock, Shares, Outstanding | 220,174,048 | 216,079,641 | 215,815,884 |
Common Stock, Shares Authorized | 400,000,000 | 400,000,000 | 400,000,000 |
Common Stock, Shares, Issued | 220,174,048 | 216,079,641 | 215,815,884 |
Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Revenue, Net | $ 1,117,331 | $ 1,047,702 |
Cost of goods sold | 611,908 | 567,066 |
Gross profit | 505,423 | 480,636 |
Selling, general and administrative expenses | 497,887 | 445,753 |
Income from operations | 7,536 | 34,883 |
Interest Income (Expense), Net | (7,820) | (4,532) |
Other income (expense), net | 2,570 | 2,702 |
Income before income taxes | 2,286 | 33,053 |
Provision for income taxes | 4,558 | 13,873 |
Net income | $ (2,272) | $ 19,180 |
Net income available per common share | ||
Basic | $ (0.01) | $ 0.04 |
Diluted | $ (0.01) | $ 0.04 |
Weighted average common shares outstanding | ||
Weighted Average Number of Shares Outstanding, Basic | 439,360 | 433,626 |
Diluted | 439,360 | 443,260 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Net income | $ (2,272) | $ 19,180 |
Other comprehensive income: | ||
Foreign currency translation adjustment | 9,819 | 7,442 |
Unrealized gain on cash flow hedge, net of tax | (6,894) | (6,257) |
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax | 1,007 | 0 |
Total other comprehensive income | 3,932 | 1,185 |
Comprehensive income | $ 1,660 | $ 20,365 |
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, Tax | $ (2,399,000) | $ (2,767,000) |
Description of the Business |
3 Months Ended |
---|---|
Mar. 31, 2017 | |
Description of the Business | Description of the Business Under Armour, Inc. is a developer, marketer and distributor of branded performance apparel, footwear and accessories. These products are sold worldwide and worn by athletes at all levels, from youth to professional on playing fields around the globe, as well as by consumers with active lifestyles. The Under Armour Connected FitnessTM platform powers the world's largest digital health and fitness community. The Company uses this platform to engage its consumers and increase awareness and sales of its products. |
Summary of Significant Accounting Policies |
3 Months Ended |
---|---|
Mar. 31, 2017 | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of Under Armour, Inc. and its wholly owned subsidiaries (the “Company”). Certain information in footnote disclosures normally included in annual financial statements was condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America for interim consolidated financial statements. In the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair statement of the financial position and results of operations were included. Intercompany balances and transactions were eliminated. The consolidated balance sheet as of December 31, 2016 is derived from the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2016 (the “2016 Form 10-K”), which should be read in conjunction with these consolidated financial statements. The results for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or any other portions thereof. On March 16, 2016, the Board of Directors approved the issuance of the Company’s new Class C non-voting common stock, referred to as the Class C stock. The Class C stock was issued through a stock dividend on a one-for-one basis to all existing holders of the Company's Class A and Class B common stock. The shares of Class C stock were distributed on April 7, 2016, to stockholders of record of Class A and Class B common stock as of March 28, 2016. Stockholders' equity and all references to share and per share amounts in the accompanying consolidated financial statements have been retroactively adjusted to reflect this one-for-one stock dividend. On June 3, 2016, the Board of Directors approved the payment of a $59.0 million dividend to the holders of the Company's Class C stock in connection with shareholder litigation related to the creation of the Class C stock. The Company's Board of Directors approved the payment of this dividend in the form of additional shares of Class C stock, with cash in lieu of any fractional shares. This dividend was distributed on June 29, 2016, in the form of 1,470,256 shares of Class C stock and $2.9 million in cash. Concentration of Credit Risk Financial instruments that subject the Company to significant concentration of credit risk consist primarily of accounts receivable. The majority of the Company’s accounts receivable is due from large retailers. Credit is extended based on an evaluation of each customer’s financial condition and collateral is not required. The Company's largest customer accounted for 16.7%, 16.1% and 20.3% of accounts receivable as of March 31, 2017, December 31, 2016 and March 31, 2016, respectively. For the three months ended March 31, 2017 no customer accounted for more than 10% of the Company's net revenues. For the three months ended March 31, 2016 the Company's largest customer accounted for 11% of net revenues. Allowance for Doubtful Accounts As of March 31, 2017, December 31, 2016 and March 31, 2016, the allowance for doubtful accounts was $12.4 million, $11.3 million and $11.9 million, respectively. Shipping and Handling Costs The Company charges certain customers shipping and handling fees. These fees are recorded in net revenues. The Company includes the majority of outbound handling costs as a component of selling, general and administrative expenses. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate the Company’s distribution facilities. These costs, included within selling, general and administrative expenses, were $24.7 million and $20.1 million for the three months ended March 31, 2017 and 2016, respectively. The Company includes outbound freight costs associated with shipping goods to customers as a component of cost of goods sold. Management Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Recently Issued Accounting Standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2014-09, which supersedes the most current revenue recognition requirements. This ASU requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services. In 2016, the FASB issued ASUs 2016-08, 2016-10, 2016-11 and 2016-12, which provide supplemental adoption guidance and clarification to ASU 2014-09. These ASUs will be effective for annual and interim periods beginning after December 15, 2017 with early adoption for annual and interim periods beginning after December 15, 2016 permitted and should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company currently anticipates adopting the guidance in this new ASU effective January 1, 2018, and has not yet determined its adoption method. While the Company has made progress on its scoping review and assessment phase. it is still evaluating the impact this ASU will have on its financial statements and related disclosures. At this time the Company’s key areas of focus include wholesale customer support costs, direct-to-consumer incentive programs and presentation of reserves on the balance sheet. In February 2016, the FASB issued ASU 2016-02, which amends the existing guidance for leases and will require recognition of operating leases with lease terms of more than twelve months and all financing leases on the balance sheet. For these leases, companies will record assets for the rights and liabilities for the obligations that are created by the leases. This ASU will require disclosures that provide qualitative and quantitative information for the lease assets and liabilities recorded in the financial statements. This ASU is effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating this ASU to determine the impact of its adoption on its consolidated financial statements. The Company currently anticipates adopting the new standard effective January 1, 2019. The Company has formed a committee and initiated the review process for adoption of this ASU. While the Company is still in the process of completing its analysis on the complete impact this ASU will have on its consolidated financial statements and related disclosures, it expects the ASU to have a material impact on its consolidated balance sheet for recognition of lease-related assets and liabilities. In January 2017, the FASB issued ASU 2017-04, which simplifies how an entity is required to test goodwill for impairment by eliminating step two of the test. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted for annual or goodwill impairment tests performed on testing dates January 1, 2017. The Company has not yet decided if it will early adopt the provisions in this ASU for its annual goodwill impairment test as of September 30, 2017. Recently Adopted Accounting Standards In March 2016, the FASB issued ASU 2016-09, which affects all entities that issue share-based payment awards to their employees. The amendments in this ASU cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures and the classification of those taxes paid on the statement of cash flows. The Company adopted the provisions of this ASU on January 1, 2017 on a prospective basis and recorded an excess tax deficiency of $1.3 million as an increase in income tax expense related to share-based compensation for vested awards. Additionally, the Company made a policy election under the provisions of this ASU to account for forfeitures when they occur rather than estimating the number of awards that are expected to vest. As a result of this election, the Company recorded a $1.9 million cumulative-effect benefit to retained earnings as of the date of adoption. The Company adopted the provisions of this ASU related to changes on the Consolidated Statement of Cash Flows on a retrospective basis. Excess tax benefits and deficiencies have been classified within cash flows from operating activities and employee taxes paid for shares withheld for income taxes have been classified within cash flows from financing activities on the Consolidated Statement of Cash Flows. This resulted in an increase of $27.1 million and a decrease of $13.7 million to the cash flows from operating activities and cash flows from financing activities sections of the Consolidated Statement of Cash Flows for the three months ended March 31, 2016, respectively. In October 2016, the FASB issued ASU 2016-16, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted the provisions of this ASU on a modified retrospective basis on January 1, 2017 resulting in a cumulative-effect benefit to retained earnings of $26.0 million as of the date of adoption. |
Credit Facility and Long Term Debt |
3 Months Ended |
---|---|
Mar. 31, 2017 | |
Credit Facility and Long Term Debt | Long Term Debt Credit Facility The Company is party to a credit agreement that provides revolving credit commitments for up to $1.25 billion of borrowings, as well as term loan commitments, in each case maturing in January 2021. As of March 31, 2017, there was $50.0 million outstanding under the revolving credit facility and $180.0 million of term loan borrowings outstanding. At the Company's request and the lender's consent, revolving and or term loan borrowings may be increased by up to $300.0 million in aggregate, subject to certain conditions as set forth in the credit agreement, as amended. Incremental borrowings are uncommitted and the availability thereof will depend on market conditions at the time the Company seeks to incur such borrowings. The borrowings under the revolving credit facility have maturities of less than one year. Up to $50.0 million of the facility may be used for the issuance of letters of credit. There were $3.6 million of letters of credit outstanding as of March 31, 2017. The credit agreement contains negative covenants that, subject to significant exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. The Company is also required to maintain a ratio of consolidated EBITDA, as defined in the credit agreement, to consolidated interest expense of not less than 3.50 to 1.00 and is not permitted to allow the ratio of consolidated total indebtedness to consolidated EBITDA to be greater than 3.25 to 1.00 ("consolidated leverage ratio"). As of March 31, 2017, the Company was in compliance with these ratios. In addition, the credit agreement contains events of default that are customary for a facility of this nature, and includes a cross default provision whereby an event of default under other material indebtedness, as defined in the credit agreement, will be considered an event of default under the credit agreement. Borrowings under the credit agreement bear interest at a rate per annum equal to, at the Company’s option, either (a) an alternate base rate, or (b) a rate based on the rates applicable for deposits in the interbank market for U.S. Dollars or the applicable currency in which the loans are made (“adjusted LIBOR”), plus in each case an applicable margin. The applicable margin for loans will be adjusted by reference to a grid (the “Pricing Grid”) based on the consolidated leverage ratio and ranges between 1.00% to 1.25% for adjusted LIBOR loans and 0.00% to 0.25% for alternate base rate loans. The weighted average interest rates under the outstanding term loans and revolving credit facility borrowings were 1.9% and 1.6% during the three months ended March 31, 2017 and 2016, respectively. The Company pays a commitment fee on the average daily unused amount of the revolving credit facility and certain fees with respect to letters of credit. As of March 31, 2017, the commitment fee was 15.0 basis points. Since inception, the Company incurred and deferred $3.9 million in financing costs in connection with the credit agreement. 3.250% Senior Notes In June 2016, the Company issued $600.0 million aggregate principal amount of 3.250% senior unsecured notes due June 15, 2026 (the “Notes”). The proceeds were used to pay down amounts outstanding under the revolving credit facility. Interest is payable semi-annually on June 15 and December 15 beginning December 15, 2016. Prior to March 15, 2026 (three months prior to the maturity date of the Notes), the Company may redeem some or all of the Notes at any time or from time to time at a redemption price equal to the greater of 100% of the principal amount of the Notes to be redeemed or a “make-whole” amount applicable to such Notes as described in the indenture governing the Notes, plus accrued and unpaid interest to, but excluding, the redemption date. On or after March 15, 2026 (three months prior to the maturity date of the Notes), the Company may redeem some or all of the Notes at any time or from time to time at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. The indenture governing the Notes contains covenants, including limitations that restrict the Company’s ability and the ability of certain of its subsidiaries to create or incur secured indebtedness and enter into sale and leaseback transactions and the Company’s ability to consolidate, merge or transfer all or substantially all of its properties or assets to another person, in each case subject to material exceptions described in the indenture. The Company incurred and deferred $5.3 million in financing costs in connection with the Notes. Other Long Term Debt In December 2012, the Company entered into a $50.0 million recourse loan collateralized by the land, buildings and tenant improvements comprising the Company's corporate headquarters. The loan has a seven year term and maturity date of December 2019. The loan bears interest at one month LIBOR plus a margin of 1.50%, and allows for prepayment without penalty. The loan includes covenants and events of default substantially consistent with the Company's credit agreement discussed above. The loan also requires prior approval of the lender for certain matters related to the property, including transfers of any interest in the property. As of March 31, 2017, December 31, 2016 and March 31, 2016, the outstanding balance on the loan was $41.5 million, $42.0 million and $43.5 million, respectively. The weighted average interest rate on the loan was 2.3% and 1.9% for the three months ended March 31, 2017 and 2016, respectively. Interest expense, net was $7.8 million and $4.5 million for the three months ended March 31, 2017 and 2016, respectively. Interest expense includes the amortization of deferred financing costs, bank fees, capital and built-to-suit lease interest and interest expense under the credit and other long term debt facilities. The Company monitors the financial health and stability of its lenders under the credit and other long term debt facilities, however during any period of significant instability in the credit markets lenders could be negatively impacted in their ability to perform under these facilities. |
Commitments and Contingencies |
3 Months Ended |
---|---|
Mar. 31, 2017 | |
Commitments and Contingencies | Commitments and Contingencies There were no significant changes to the contractual obligations reported in the 2016 Form 10-K other than those which occur in the normal course of business. In connection with various contracts and agreements, the Company has agreed to indemnify counterparties against certain third party claims relating to the infringement of intellectual property rights and other items. Generally, such indemnification obligations do not apply in situations in which the counterparties are grossly negligent, engage in willful misconduct, or act in bad faith. Based on the Company’s historical experience and the estimated probability of future loss, the Company has determined that the fair value of such indemnifications is not material to its consolidated financial position or results of operations. From time to time, the Company is involved in litigation and other proceedings, including matters related to commercial and intellectual property disputes, as well as trade, regulatory and other claims related to its business. Other than as described below, the Company believes that all current proceedings are routine in nature and incidental to the conduct of its business, and that the ultimate resolution of any such proceedings will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. In early 2017, three shareholders filed separate securities cases in the United States District Court for the District of Maryland (the “Court”) against the Company, the Company’s Chief Executive Officer and the Company’s former Chief Financial Officer, the first of which was filed on February 10, 2017. Each of the complaints alleged violations of Section 10(b) (and Rule 10b-5) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 20(a) control person liability under the Exchange Act against the officers named in the complaints. In general, the allegations in each case concern disclosures and statements made by defendants regarding the Company’s expected revenue growth during the purported class periods. Two of these cases allege class periods between April 21, 2016 and January 20, 2017, inclusive, and one case alleges a class period between July 24, 2014 and January 30, 2017, inclusive. On March 23, 2017, all three cases were consolidated under the caption In re Under Armour Securities Litigation, Case No. 17-cv-00388-RDB (the “Consolidated Action”). On April 26, 2017, the Court issued an order appointing Aberdeen City Counsel as Administrating Authority for the North East Scotland Pension Fund (“NESFP”) as lead plaintiff for the putative class in the Consolidated Action; because the remaining lead plaintiff applicants did not oppose the appointment of NESFP, no appeal from that order is expected. The Company believes that the claims asserted in the Consolidated Action are without merit and intends to defend the lawsuit vigorously. However, because of the inherent uncertainty as to the outcome of this proceeding, the Company is unable at this time to estimate the possible impact of the outcome of this matter. |
Fair Value Measurements |
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Fair Value Measurements | Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The fair value accounting guidance outlines a valuation framework, creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures, and prioritizes the inputs used in measuring fair value as follows:
Financial assets and (liabilities) measured at fair value are set forth in the table below:
Fair values of the financial assets and liabilities listed above are determined using inputs that use as their basis readily observable market data that are actively quoted and are validated through external sources, including third-party pricing services and brokers. The Company purchases marketable securities that are designated as available-for-sale. The foreign currency contracts represent gains and losses on derivative contracts, which is the net difference between the U.S. dollar value to be received or paid at the contracts’ settlement date and the U.S. dollar value of the foreign currency to be sold or purchased at the current market exchange rate. The interest rate swap contracts represent gains and losses on the derivative contracts, which is the net difference between the fixed interest to be paid and variable interest to be received over the term of the contract based on current market rates. The fair value of the trust owned life insurance (“TOLI”) policies held by the Rabbi Trust is based on the cash-surrender value of the life insurance policies, which are invested primarily in mutual funds and a separately managed fixed income fund. These investments are initially made in the same funds and purchased in substantially the same amounts as the selected investments of participants in the Under Armour, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”), which represent the underlying liabilities to participants in the Deferred Compensation Plan. Liabilities under the Deferred Compensation Plan are recorded at amounts due to participants, based on the fair value of participants’ selected investments. As of March 31, 2017, the fair value of the Company's Senior Notes is $548.2 million. The carrying value of the Company's other long term debt approximated its fair value as of March 31, 2017 and 2016. The fair value of long-term debt is estimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets (Level 2). |
Stock-Based Compensation |
3 Months Ended |
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Mar. 31, 2017 | |
Stock-Based Compensation | Stock-Based Compensation During the three months ended March 31, 2017, 3.1 million time-based restricted stock units, 0.2 million time-based options, 1.3 million performance-based restricted stock units and 0.5 million performance-based options for shares of our Class C common stock were awarded to certain officers and key employees under the Company's Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan, as amended. The time-based restricted stock units and options have weighted average grant date fair values of $19.04 and $8.17, respectively, and vest in four equal annual installments. The performance-based restricted stock units and options have weighted average grant date fair values of $19.04 and $8.17, respectively, and have vesting conditions tied to the achievement of certain combined annual revenue and operating income targets for 2017 and 2018. Upon the achievement of the targets, one half of the restricted stock units and options will vest each in February 2019 and February 2020. If certain lower levels of combined annual revenue and operating income for 2017 and 2018 are achieved, fewer or no restricted stock units or options will vest and the remaining restricted stock units and options will be forfeited. The Company deemed the achievement of certain operating income targets for 2017 and 2018 probable during the three months ended March 31, 2017. The Company assesses the probability of the achievement of the remaining operating income targets at the end of each reporting period. If it becomes probable that any remaining performance targets related to these performance-based restricted stock units and options will be achieved, a cumulative adjustment will be recorded as if ratable stock-based compensation expense had been recorded since the grant date. Additional stock based compensation of up to $0.8 million would have been recorded during the three months ended March 31, 2017, for these performance-based restricted stock units and options had the achievement of the remaining revenue and operating income targets been deemed probable. During 2016, the Company granted performance-based restricted stock units and options with vesting conditions tied to the achievement of certain combined annual operating income targets for 2016 and 2017. As of March 31, 2017, the Company deems the achievement of these operating income targets improbable. As such, no expense for these awards has been recorded. |
Risk Management and Derivatives |
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Foreign Currency Risk Management and Derivatives | Risk Management and Derivatives Foreign Currency Risk Management The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions generated by its international subsidiaries in currencies other than their local currencies. These gains and losses are primarily driven by intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity. From time to time, the Company may elect to enter into foreign currency contracts to reduce the risk associated with foreign currency exchange rate fluctuations on intercompany transactions and projected inventory purchases for its international subsidiaries. As of March 31, 2017, the aggregate notional value of the Company's outstanding foreign currency contracts was $890.1 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 fourteen months. A portion of the Company's foreign currency contracts are not designated as cash flow hedges, and accordingly, changes in their fair value are recorded in earnings. The Company also enters 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 three months ended March 31, 2017 and 2016, the Company reclassified $0.8 million and $0.9 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 $5.8 million and $15.2 million as of March 31, 2017 and December 31, 2016, respectively, and were included in prepaid expenses and other current assets on the consolidated balance sheet. The fair values of the Company's foreign currency contracts were liabilities of $1.1 million as of March 31, 2016, and were included in accrued expenses on the consolidated balance sheet. Refer to Note 5 for a discussion of the fair value measurements. Included in other income, net were the following amounts related to changes in foreign currency exchange rates and derivative foreign currency contracts:
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 3 for a discussion of long term debt. As of March 31, 2017, the notional value of the Company's outstanding interest rate swap contracts was $148.8 million. During the three months ended March 31, 2017 and 2016, the Company recorded a $0.3 million and $0.5 million increase in interest expense, respectively, representing the effective portion of the contract reclassified from accumulated other comprehensive income. The fair values of the interest rate swap contracts were assets of $0.2 million as of March 31, 2017, and were included in other long term assets on the consolidated balance sheet. The fair values of the interest rate swap contracts were liabilities of $4.3 million as of March 31, 2016, 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 derivative contracts. However, the Company monitors the credit quality of these financial institutions and considers the risk of counterparty default to be minimal. |
Provision for Income Taxes |
3 Months Ended |
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Mar. 31, 2017 | |
Provision for Income Taxes | Provision for Income Taxes The effective rates for income taxes were 199.5% and 42.0% for the three months ended March 31, 2017 and 2016, respectively. The effective tax rate for the three months ended March 31, 2017 was higher than the effective tax rate for the three months ended March 31, 2016 primarily due to the impact of discrete items as a percentage of income before taxes in each respective period. The discrete items include reserves in certain international markets, and during the three months ended March 31, 2017, permanent differences resulting from the Company's required adoption of ASU 2016-09. |
Earnings per Share |
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Earnings per Share | Earnings per Share The following represents a reconciliation from basic earnings per share to diluted earnings per share:
Effects of potentially dilutive securities are presented only in periods in which they are dilutive. Due to the Company being in a net loss position for the three months ended March 31, 2017, there were no warrants, stock options or restricted stock units included in the computation of diluted earnings per share, as their effect would have been anti-dilutive. Warrants, stock options and restricted stock units representing 0.3 million shares of Class A common stock and 0.3 million shares of Class C common stock outstanding for the three months ended March 31, 2016, were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive. |
Segment Data and Related Information |
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Segment Data and Related Information | Segment Data and Related Information The Company’s operating segments are based on how the Chief Operating Decision Maker (“CODM”) makes decisions about allocating resources and assessing performance. As such, the CODM receives discrete financial information for the Company's principal business by geographic region based on the Company’s strategy to become a global brand. These geographic regions include North America, Latin America, Europe, the Middle East and Africa (“EMEA”), and Asia-Pacific. Each geographic segment operates exclusively in one industry: the development, marketing and distribution of branded performance apparel, footwear and accessories. The CODM also receives discrete financial information for the Company's Connected Fitness business. The net revenues and operating income (loss) associated with the Company's segments are summarized in the following tables. Net revenues represent sales to external customers for each segment. Intercompany balances were eliminated for separate disclosure. The majority of corporate service costs within North America have not been allocated to the Company's other segments. As the Company continues to grow its business outside of North America, a larger portion of its corporate overhead costs have begun to support global functions. Due to the individual materiality of our Asia-Pacific segment, the Company has separately presented its Asia-Pacific, EMEA and Latin America segments, and will no longer combine these segments for presentation purposes. Net revenues and operating income by segment presented for prior periods have been conformed to the current presentation. Total expenditures for additions to long-lived assets are not disclosed as this information is not regularly provided to the CODM.
Net revenues by product category are as follows:
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Summary of Significant Accounting Policies (Policies) |
3 Months Ended |
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Mar. 31, 2017 | |
Concentration of Credit Risk | Concentration of Credit Risk Financial instruments that subject the Company to significant concentration of credit risk consist primarily of accounts receivable. The majority of the Company’s accounts receivable is due from large retailers. Credit is extended based on an evaluation of each customer’s financial condition and collateral is not required. The Company's largest customer accounted for 16.7%, 16.1% and 20.3% of accounts receivable as of March 31, 2017, December 31, 2016 and March 31, 2016, respectively. For the three months ended March 31, 2017 no customer accounted for more than 10% of the Company's net revenues. |
Allowance For Doubtful Accounts | Allowance for Doubtful Accounts As of March 31, 2017, December 31, 2016 and March 31, 2016, the allowance for doubtful accounts was $12.4 million, $11.3 million and $11.9 million, respectively. |
Shipping and Handling Costs | Shipping and Handling Costs The Company charges certain customers shipping and handling fees. These fees are recorded in net revenues. The Company includes the majority of outbound handling costs as a component of selling, general and administrative expenses. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate the Company’s distribution facilities. These costs, included within selling, general and administrative expenses, were $24.7 million and $20.1 million for the three months ended March 31, 2017 and 2016, respectively. The Company includes outbound freight costs associated with shipping goods to customers as a component of cost of goods sold. |
Management Estimates | Management Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. |
Fair Value Measurements (Tables) |
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Financial Assets And (Liabilities) Measured At Fair Value | Financial assets and (liabilities) measured at fair value are set forth in the table below:
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Risk Management and Derivatives (Tables) |
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Changes in Foreign Currency Exchange Rates and Derivative Foreign Currency Forward Contracts | Included in other income, net were the following amounts related to changes in foreign currency exchange rates and derivative foreign currency contracts:
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Earnings per Share (Tables) |
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Schedule of Reconciliation of Basic Earnings per Share to Diluted Earnings per Share | The following represents a reconciliation from basic earnings per share to diluted earnings per share:
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Segment Data and Related Information (Tables) |
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Reconciliation of Revenue from Segments to Consolidated |
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Reconciliation of Operating Profit (Loss) from Segments to Consolidated |
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Net Revenues by Product Category | Net revenues by product category are as follows:
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Summary Of Significant Accounting Policies (Schedule Of Customers That Accounted For A Large Portion Of Net Revenues And Accounts Receivable) (Detail) |
Mar. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2016 |
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Customer A [Member] | Accounts Receivable [Member] | |||
Concentration Risk [Line Items] | |||
Concentration Credit Risk, Percentage | 16.70% | 16.10% | 20.30% |
Fair Value Measurements (Narrative) (Detail) - USD ($) |
Mar. 31, 2017 |
Dec. 31, 2016 |
Mar. 31, 2016 |
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Senior Notes [Member] | |||
Debt Instrument [Line Items] | |||
Senior Notes | $ 548,200,000.0 | ||
Fair Value, Inputs, Level 1 [Member] | |||
Debt Instrument [Line Items] | |||
Foreign Currency Contract, Asset, Fair Value Disclosure | $ 0 | $ 0 | $ 0 |
Risk Management And Derivatives (Narrative) (Detail) - USD ($) $ in Thousands |
3 Months Ended | ||
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Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
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Derivative [Line Items] | |||
Maturity of foreign currency forward contract | 14 months | ||
Foreign Currency Cash Flow Hedge Gain (Loss) Reclassified to Earnings, Net | $ (800) | $ (900) | |
Notional Amount of Interest Rate Derivatives | $ 890,100 | ||
Derivative, Lower Remaining Maturity Range | 1 month | ||
Interest Rate Swap [Member] | |||
Derivative [Line Items] | |||
Notional Amount of Interest Rate Derivatives | $ 148,800 | ||
Derivative Instruments, Gain (Loss) Recognized in Income, Net | 300 | 500 | |
Fair Value, Inputs, Level 2 [Member] | |||
Derivative [Line Items] | |||
Foreign Currency Contract, Asset, Fair Value Disclosure | (5,801) | (1,122) | $ (15,238) |
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member] | |||
Derivative [Line Items] | |||
Interest Rate Derivatives, at Fair Value, Net | $ 162 | $ (4,282) | $ (420) |
Risk Management And Derivatives (Changes In Foreign Currency Exchange Rates And Derivative Foreign Currency Forward Contracts) (Detail) - USD ($) $ in Thousands |
3 Months Ended | ||
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Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
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Foreign Currency Exchange Gain Loss [Line Items] | |||
Maturity of foreign currency forward contract | 14 months | ||
Unrealized foreign currency exchange rate gains (losses) | $ 8,313 | $ 11,248 | |
Realized foreign currency exchange rate gains (losses) | (272) | 597 | |
Unrealized derivative gains (losses) | (704) | 211 | |
Realized derivative gains (losses) | (6,366) | (9,986) | |
Fair Value, Inputs, Level 2 [Member] | |||
Foreign Currency Exchange Gain Loss [Line Items] | |||
Foreign Currency Contract, Asset, Fair Value Disclosure | $ 5,801 | $ 1,122 | $ 15,238 |
Provision For Income Taxes (Detail) |
3 Months Ended | |
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Mar. 31, 2017
Rate
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Mar. 31, 2016
Rate
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Provision For Income Taxes [Line Items] | ||
Effective tax rate | 199.46499% | 41.97198% |
Earnings Per Share (Schedule Of Reconciliation Of Basic Earnings Per Share To Diluted Earnings Per Share) (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Jun. 30, 2016 |
Mar. 31, 2016 |
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Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | |||
Net income | $ (2,272) | $ 19,180 | |
Dividends | $ 59,000 | ||
Weighted Average Number of Shares Outstanding, Basic | 439,360 | 433,626 | |
Effect of dilutive securities | 0 | 9,634 | |
Weighted Average Number of Shares Outstanding, Diluted | 439,360 | 443,260 | |
Earnings Per Share, Basic | $ (0.01) | $ 0.04 | |
Earnings Per Share, Diluted | $ (0.01) | $ 0.04 |
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