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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
Form 10-Q
______________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No. 001-33202
______________________________________
ua-20190630_g1.jpg
UNDER ARMOUR, INC.
(Exact name of registrant as specified in its charter)
______________________________________
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)
 ______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Class A Common StockUAANew York Stock Exchange
Class C Common StockUANew York Stock Exchange
(Title of each class)(Trading Symbols)(Name of each exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of June 30, 2019 there were 188,144,137 shares of Class A Common Stock, 34,450,000 shares of Class B Convertible Common Stock and 228,652,955 Class C Common Stock outstanding.


Table of Contents
UNDER ARMOUR, INC.
June 30, 2019
INDEX TO FORM 10-Q
 
PART I.
Item 1.




Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 6.



Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
(In thousands, except share data)
June 30,
2019
December 31,
2018
June 30,
2018
Assets
Current assets
Cash and cash equivalents$455,726 $557,403 $196,879 
Accounts receivable, net735,181 652,546 724,945 
Inventories965,711 1,019,496 1,299,332 
Prepaid expenses and other current assets287,829 364,183 340,359 
Total current assets2,444,447 2,593,628 2,561,515 
Property and equipment, net795,499 826,868 835,427 
Operating lease right-of-use assets606,018 — — 
Goodwill548,762 546,494 551,160 
Intangible assets, net39,527 41,793 45,880 
Deferred income taxes129,403 112,420 111,746 
Other long term assets116,252 123,819 135,424 
Total assets$4,679,908 $4,245,022 $4,241,152 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$607,382 $560,884 $691,163 
Accrued expenses304,063 340,415 258,567 
Customer refund liabilities241,456 301,421 303,730 
Operating lease liabilities116,219 — — 
Current maturities of long term debt 25,000 27,000 
Other current liabilities63,521 88,257 57,939 
Total current liabilities1,332,641 1,315,977 1,338,399 
Long term debt, net of current maturities591,396 703,834 752,370 
Operating lease liabilities, non-current601,665 — — 
Other long term liabilities105,932 208,340 226,471 
Total liabilities2,631,634 2,228,151 2,317,240 
Commitments and contingencies (See Note 6)
Stockholders’ equity
Class A Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of June 30, 2019, December 31, 2018 and June 30, 2018; 188,144,137 shares issued and outstanding as of June 30, 2019, 187,710,319 shares issued and outstanding as of December 31, 2018, and 186,050,706 shares issued and outstanding as of June 30, 2018.62 62 62 
Class B Convertible Common Stock, $0.0003 1/3 par value; 34,450,000 shares authorized, issued and outstanding as of June 30, 2019, December 31, 2018 and June 30, 2018.11 11 11 
Class C Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of June 30, 2019, December 31, 2018 and June 30, 2018; 228,652,955 shares issued and outstanding as of June 30, 2019, 226,421,963 shares issued and outstanding as of December 31, 2018, and 224,382,239 shares issued and outstanding as of June 30, 2018.76 75 75 
Additional paid-in capital946,488 916,628 901,851 
Retained earnings1,141,129 1,139,082 1,060,402 
Accumulated other comprehensive loss(39,492)(38,987)(38,489)
Total stockholders’ equity2,048,274 2,016,871 1,923,912 
Total liabilities and stockholders’ equity$4,679,908 $4,245,022 $4,241,152 
See accompanying notes.
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Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(In thousands, except per share amounts)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2019201820192018
Net revenues$1,191,729 $1,174,859 $2,396,451 $2,360,229 
Cost of goods sold637,408 648,275 1,297,343 1,310,192 
Gross profit554,321 526,584 1,099,108 1,050,037 
Selling, general and administrative expenses565,803 552,619 1,075,331 1,067,253 
Restructuring and impairment charges 78,840  116,320 
Income (loss) from operations(11,482)(104,875)23,777 (133,536)
Interest expense, net(5,988)(8,552)(10,226)(17,116)
Other expense, net(1,128)(8,069)(1,795)(5,181)
Income (loss) before income taxes(18,598)(121,496)11,756 (155,833)
Income tax expense (benefit)(5,740)(26,090)2,391 (30,183)
Loss from equity method investment(4,491)(138)(4,237)(138)
Net income (loss)$(17,349)$(95,544)$5,128 $(125,788)
Basic net income (loss) per share of Class A, B and C common stock$(0.04)$(0.21)$0.01 $(0.28)
Diluted net income (loss) per share of Class A, B and C common stock$(0.04)$(0.21)$0.01 $(0.28)
Weighted average common shares outstanding Class A, B and C common stock
Basic451,066 444,626 450,411 443,844 
Diluted451,066 444,626 453,717 443,844 
See accompanying notes.
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Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
 
 Three Months Ended June 30,Six Months Ended June 30,
 20192018 20192018
Net income (loss)$(17,349)$(95,544)$5,128 $(125,788)
Other comprehensive income (loss):
Foreign currency translation adjustment1,408 (28,666)7,398 (15,819)
Unrealized gain (loss) on cash flow hedge, net of tax benefit (expense) of $552 and ($5,745) for the three months ended June 30, 2019 and 2018, respectively, and $3,152 and ($6,093) for the six months ended June 30, 2019 and 2018, respectively.391 16,303 (8,710)17,335 
Gain (loss) on intra-entity foreign currency transactions(1,115)(5,043)807 (1,794)
Total other comprehensive income (loss)684 (17,406)(505)(278)
Comprehensive income (loss)$(16,665)$(112,950)$4,623 $(126,066)
See accompanying notes.
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Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Stockholders' Equity
(In thousands)

Class A
Common Stock
Class B
Convertible
Common Stock
Class C
Common Stock
Additional Paid-in-CapitalRetained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Equity
SharesAmountSharesAmountSharesAmount
Balance as of March 31, 2018185,685 $62 34,450 $11 223,905 $75 $882,721 $1,155,946 $(21,083)$2,017,732 
Exercise of stock options357 — — — 352 — 4,719 — — 4,719 
Issuance of Class A Common Stock, net of forfeitures9 — — — — — — — — — 
Issuance of Class C Common Stock, net of forfeitures— — — — 125 — 1,559 — — 1,559 
Stock-based compensation expense— — — — — — 12,852 — — 12,852 
Comprehensive loss— — — — — — — (95,544)(17,406)(112,950)
Balance as of June 30, 2018186,051 $62 34,450 $11 224,382 $75 $901,851 $1,060,402 $(38,489)$1,923,912 
Balance as of December 31, 2017185,257 $61 34,450 $11 222,375 $74 $872,266 $1,184,441 $(38,211)$2,018,642 
Exercise of stock options448 1 — — 458 — 5,784 — — 5,785 
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements(23)— — — (84)— — (1,758)— (1,758)
Issuance of Class A Common Stock, net of forfeitures369 — — — — — — — — — 
Issuance of Class C Common Stock, net of forfeitures— — — — 1,633 1 2,998 — — 2,999 
Impact of adoption of accounting standard updates— — — — — — — 3,507 — 3,507 
Stock-based compensation expense— — — — — — 20,803 — — 20,803 
Comprehensive loss— — — — — — — (125,788)(278)(126,066)
Balance as of June 30, 2018186,051 $62 34,450 $11 224,382 $75 $901,851 $1,060,402 $(38,489)$1,923,912 
See accompanying notes.
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Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Stockholders' Equity (continued)
(In thousands)

Class A
Common Stock
Class B
Convertible
Common Stock
Class C
Common Stock
Additional Paid-in-CapitalRetained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Equity
SharesAmountSharesAmountSharesAmount
Balance as of March 31, 2019187,980 $62 34,450 $11 228,489 $76 $931,352 $1,158,482 $(40,176)$2,049,807 
Exercise of stock options161 — — — 59 — 529 — — 529 
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements(5)— — — (6)— — (4)— (4)
Issuance of Class A Common Stock, net of forfeitures8 — — — — — — — — — 
Issuance of Class C Common Stock, net of forfeitures— — — — 111 — 1,473 — — 1,473 
Stock-based compensation expense— — — — — — 13,134 — — 13,134 
Comprehensive income (loss)— — — — — — — (17,349)684 (16,665)
Balance as of June 30, 2019188,144 $62 34,450 $11 228,653 $76 $946,488 $1,141,129 $(39,492)$2,048,274 
Balance as of December 31, 2018187,710 $62 34,450 $11 226,422 $75 $916,628 $1,139,082 $(38,987)$2,016,871 
Exercise of stock options315 — — — 237 — 1,376 — — 1,376 
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements(15)— — — (158)— — (3,081)— (3,081)
Issuance of Class A Common Stock, net of forfeitures134 — — — — — — — — — 
Issuance of Class C Common Stock, net of forfeitures— — — — 2,152 1 2,859 — — 2,860 
Stock-based compensation expense— — — — — — 25,625 — — 25,625 
Comprehensive income (loss)— — — — — — — 5,128 (505)4,623 
Balance as of June 30, 2019188,144 $62 34,450 $11 228,653 $76 $946,488 $1,141,129 $(39,492)$2,048,274 
See accompanying notes.
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Under Armour, Inc. and Subsidiaries`
Unaudited Consolidated Statements of Cash Flows
(In thousands)
 Six Months Ended June 30,
 20192018
Cash flows from operating activities
Net income (loss)$5,128 $(125,788)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization93,721 91,271 
Unrealized foreign currency exchange rate gain (loss)(3,077)13,151 
Loss on disposal of property and equipment2,447 2,496 
Impairment charges 9,660 
Amortization of bond premium127 127 
Stock-based compensation25,635 20,673 
Deferred income taxes(13,890)(35,969)
Changes in reserves and allowances(10,196)(238,005)
Changes in operating assets and liabilities:
Accounts receivable(75,116)116,896 
Inventories62,302 (158,430)
Prepaid expenses and other assets64,533 (54,422)
Other non-current assets12,812 768 
Accounts payable57,674 160,164 
Accrued expenses and other liabilities(48,094)48,939 
Customer refund liability(60,089)307,192 
Income taxes payable and receivable(1,210)(12,716)
Net cash provided by operating activities112,707 146,007 
Cash flows from investing activities
Purchases of property and equipment(77,046)(95,607)
Sale of property and equipment 11,285 
Purchases of other assets(997)(2,536)
Purchase of equity method investment (39,207)
Net cash used in investing activities(78,043)(126,065)
Cash flows from financing activities
Proceeds from long term debt and revolving credit facility25,000 210,000 
Payments on long term debt and revolving credit facility(162,817)(348,500)
Employee taxes paid for shares withheld for income taxes(3,077)(1,759)
Proceeds from exercise of stock options and other stock issuances4,238 8,913 
Payments of debt financing costs(2,661)(11)
Other financing fees76 87 
Net cash used in financing activities(139,241)(131,270)
Effect of exchange rate changes on cash, cash equivalents and restricted cash4,463 (2,487)
Net decrease in cash, cash equivalents and restricted cash(100,114)(113,815)
Cash, cash equivalents and restricted cash
Beginning of period566,060 318,135 
End of period$465,946 $204,320 
Non-cash investing and financing activities
Change in accrual for property and equipment$(17,392)$(31,957)
See accompanying notes.
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Under Armour, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements

1. Description of the Business
Under Armour, Inc. and its wholly owned subsidiaries (the "Company") is a developer, marketer and distributor of branded athletic performance apparel, footwear, and accessories. Powered by one of the world's largest digitally connected fitness and wellness communities, the Company's innovative products and experiences are designed to help advance human performance, making all athletes better. The Company's products are made, sold and worn worldwide.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of 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 ("U.S. GAAP") 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, 2018 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, 2018 (the “2018 Form 10-K”), which should be read in conjunction with these consolidated financial statements. The results for the three and six months ended June 30, 2019, are not necessarily indicative of the results to be expected for the year ending December 31, 2019, or any other portions thereof.
During the second quarter of 2019, the Company recorded an adjustment related to prior periods to correct unrecorded consulting expenses incurred primarily in connection with the 2018 restructuring plan. Selling, general and administrative expenses for the three and six months ended June 30, 2019 include $6.0 million and $5.5 million, respectively, of expense that was understated in prior periods. The Company concluded that the error was not material to any of the periods impacted.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. The Company's restricted cash is reserved for payments related to claims for its captive insurance program, which is included in prepaid expenses and other current assets on the Company's unaudited consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited consolidated balance sheets to the unaudited consolidated statements of cash flows.
(In thousands)June 30, 2019December 31, 2018June 30, 2018
Cash and cash equivalents$455,726 $557,403 $196,879 
Restricted cash10,220 8,657 7,441 
Total Cash, cash equivalents and restricted cash$465,946 $566,060 $204,320 
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. None of the Company's customers accounted for more than 10% of accounts receivable as of June 30, 2019, December 31, 2018, and June 30, 2018, respectively. For the three and six months ended June 30, 2019 and 2018, no customer accounted for more than 10% of the Company's net revenues.
Sale of Accounts Receivable
In 2018, the Company entered into agreements with two financial institutions to sell selected accounts receivable on a recurring, non-recourse basis. In 2019, the Company amended one agreement to reduce the facility amount. Under each agreement, the Company may sell up to $140.0 million and $50.0 million, respectively,
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provided the accounts receivable of certain customers cannot be outstanding simultaneously with both institutions. Balances may remain outstanding at any point in time. The Company removes the sold accounts receivable from the unaudited consolidated balance sheets at the time of sale. The Company does not retain any interests in the sold accounts receivable. The Company acts as the collection agent for the outstanding accounts receivable on behalf of the financial institutions.
As of June 30, 2019 and 2018, $0.2 million and $20.2 million remained outstanding, respectively. As of December 31, 2018, there were no amounts outstanding. The funding fee charged by the financial institutions is included in the other income (expense), net line item in the consolidated statement of operations.
Allowance for Doubtful Accounts
As of June 30, 2019, December 31, 2018, and June 30, 2018, the allowance for doubtful accounts was $17.8 million, $22.2 million and $27.6 million, respectively.
Revenue Recognition
Net revenues consist of net sales, license and Connected Fitness revenue. Net sales are recognized upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. Payment is due in full when title is transferred. Transfer of title and risk of loss is based upon shipment under free on board shipping point for most goods or upon receipt by the customer depending on the country of the sale and the agreement with the customer. In some instances, transfer of title and risk of loss takes place at the point of sale, for example, at the Company’s brand and factory house stores. The Company may also ship product directly from its supplier to the customer and recognize revenue when the product is delivered to and accepted by the customer. License revenue is primarily recognized based upon shipment of licensed products sold by the Company's licensees. Sales taxes imposed on the Company’s revenues from product sales are presented on a net basis on the consolidated statements of income, and therefore do not impact net revenues or costs of goods sold.
The Company records reductions to revenue for estimated customer returns, allowances, markdowns and discounts. The Company bases its estimates on historical rates of customer returns and allowances, as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances, which is inherently uncertain, may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Provisions for customer specific discounts are based on contractual obligations with certain major customers. Reserves for returns, allowances, markdowns and discounts are included within customer refund liability and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the consolidated balance sheet.
Contract Liabilities
Contract liabilities are recorded when a customer pays consideration, or the Company has a right to an amount of consideration that is unconditional, before the transfer of a good or service to the customer, and thus represent the Company's obligation to transfer the good or service to the customer at a future date. The Company's contract liabilities primarily consist of payments received in advance of revenue recognition for subscriptions for the Company's Connected Fitness applications and royalty arrangements, included in other current liabilities, and gift cards, included in accrued expenses, on the Company's unaudited consolidated balance sheets. As of June 30, 2019, December 31, 2018, and June 30, 2018, contract liabilities were $58.4 million, $55.0 million and $30.4 million, respectively.
For the three and six months ended June 30, 2019, the Company recognized $13.4 million and $32.6 million of revenue that was previously included in contract liabilities as of December 31, 2018. For the three and six months ended June 30, 2018, the Company recognized $5.6 million and $15.2 million of revenue that was previously included in contract liabilities as of December 31, 2017. The change in the contract liabilities balance primarily results from the timing differences between the Company's satisfaction of performance obligations and the customer's payment. Commissions related to subscription revenue are capitalized and recognized over the subscription period.
Practical Expedients and Policy Elections
The Company has made a policy election to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than an additional promised service. Additionally, the Company has elected not to disclose certain information related to unsatisfied performance
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obligations for subscriptions for its Connected Fitness applications as they have an original expected length of one year or less.
Shipping and Handling Costs
The Company charges certain customers shipping and handling fees. These fees are recorded in net revenues. The Company incurs freight costs associated with shipping goods to customers. These costs are recorded as a component of cost of goods sold.
The Company also incurs outbound handling costs associated with preparing goods to ship to customers and certain costs to operate the Company’s distribution facilities. These costs are recorded as a component of selling, general and administrative expenses and were $20.5 million and $22.4 million for the three months ended June 30, 2019 and 2018, respectively, and $42.2 million and $46.0 million for the six months ended June 30, 2019 and 2018, respectively.
Equity Method Investment
In April 2018, the Company invested ¥4.2 billion or $39.2 million in exchange for an additional 10% common stock ownership in Dome Corporation ("Dome"), the Company's Japanese licensee. This additional investment brought the Company's total investment in Dome's common stock to 29.5%, from 19.5%. The Company accounts for its investment in Dome under the equity method, given it has the ability to exercise significant influence, but not control, over Dome.
As of June 30, 2019, the carrying value of the Company’s total investment in Dome was $48.6 million. The Company's proportionate share of Dome's net assets exceeded its total investment by $63.8 million, which was determined at the time of the investment in April 2018, and is not amortized. For the three and six months ended June 30, 2019 and 2018, the Company recorded the allocable share of Dome’s net income (loss) in its consolidated statements of operations and as an adjustment to the invested balance.
In addition to the investment in Dome, the Company has a license agreement with Dome. The Company recorded license revenues from Dome of $5.2 million and $4.8 million for the three months ended June 30, 2019 and 2018, respectively, and $11.7 million and $13.7 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, December 31, 2018, and June 30, 2018, the Company had $5.2 million, $13.1 million, and $4.9 million, respectively, in licensing receivables outstanding, recorded in the prepaid expenses and other current assets line item within the Company's unaudited consolidated balance sheets.

Management Estimates
The preparation of financial statements in conformity with U.S. GAAP 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 June 2016, the Financial Accounting Standards Boards ("FASB") issued ASU 2016-13 - Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses. The new standard applies to financial assets measured at amortized cost basis, including receivables that result from revenue transactions. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption is permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
Recently Adopted Accounting Standards
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, an update that amends and simplifies certain aspects of hedge accounting rules to increase transparency of the impact of risk management activities in the financial statements. The Company adopted this ASU on January 1, 2019. There was no material impact to the Company's consolidated financial statements.
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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), 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. The Company adopted this ASU and related amendments on January 1, 2019, and has elected certain practical expedients permitted under the transition guidance. The Company elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. As permitted, the Company did not reassess whether existing contracts are or contain leases, the lease classification for any existing leases, initial direct costs for any existing leases and whether existing land easements and rights of way, which were not previously accounted for as leases, are leases. The Company implemented a new lease system in connection with the adoption of this ASU. The Company has operating lease right-of-use assets of $606.0 million and operating lease liabilities of $717.9 million on the Company's unaudited consolidated balance sheets as of June 30, 2019. The difference between the operating lease right-of-use assets and operating lease liabilities primarily represents the existing deferred rent and tenant improvement allowance liabilities balance, resulting from historical straight-lining of operating leases, which were effectively reclassified upon adoption to reduce the measurement of the leased assets. There was no material impact to the consolidated statements of operations and no cumulative earnings effect adjustment upon adoption. Refer to Note 4 for a discussion of leases.

3. Restructuring and Impairment
As previously announced, in both 2017 and 2018, the Company's Board of Directors approved restructuring plans (the "2017 restructuring plan" and the "2018 restructuring plan") designed to more closely align its financial resources with the critical priorities of the business and optimize operations. All restructuring charges under the plans were incurred by December 31, 2018.
The summary of the costs incurred during the three and six months ended June 30, 2018 in connection with the 2018 restructuring plan is as follows:
(In thousands)Three Months Ended
June 30, 2018
Six Months Ended June 30, 2018
Costs recorded in cost of goods sold:
     Inventory write-offs$5,940 $13,414 
Total costs recorded in cost of goods sold5,940 13,414 
Costs recorded in restructuring and impairment charges:
     Property and equipment impairment9,717 11,964 
Other restructuring costs9,840 19,723 
Contract exit costs59,283 84,633 
Total costs recorded in restructuring and impairment charges78,840 116,320 
Total restructuring, impairment and restructuring related costs$84,780 $129,734 

A summary of the activity in the restructuring reserve related to the Company's 2017 and 2018 restructuring plans is as follows:
(In thousands)Employee Related CostsContract Exit CostsOther Restructuring Related Costs
Balance at January 1, 2019$8,532 $71,356 $4,876 
Additions charged to expense   
Cash payments charged against reserve(5,483)(13,439)(4,794)
Reclassification to operating lease liabilities (1) (30,572) 
Changes in reserve estimate(917)  
Balance at June 30, 2019$2,132 $27,345 $82 
(1) Certain restructuring reserves have been reclassified to operating lease liabilities on the unaudited consolidated balance sheets in connection with the adoption of ASU 2016-02.

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4. Leases
The Company leases warehouse space, office facilities, space for its brand and factory house stores and certain equipment under non-cancelable operating leases. The leases expire at various dates through 2035, excluding extensions at the Company's option, and include provisions for rental adjustments.
Right-of-use assets and lease liabilities are established on the unaudited consolidated balance sheets for leases with an expected term greater than one year. As the rate implicit in the lease is not readily determinable, the Company uses its secured incremental borrowing rate to determine the present value of the lease payments. Leases with an initial term of 12 months or less are not recorded on the unaudited consolidated balance sheets.
The Company recognizes lease expense on a straight-line basis over the lease term. Included in selling, general and administrative expenses were operating lease costs of $38.7 million and $75.8 million for the three and six months ended June 30, 2019, respectively, under non-cancelable operating lease agreements.
Variable lease payments primarily consist of payments dependent on sales in brand and factory house stores. Short-term and variable lease payments are recorded in selling, general, and administrative expenses and are not material. There are no residual value guarantees that exist, and there are no restrictions or covenants imposed by leases. The Company rents or subleases excess office facilities and warehouse space to third parties. Sublease income is not material.
Supplemental balance sheet information related to leases was as follows:
June 30, 2019
Weighted average remaining lease term (in years)7.1
Weighted average discount rate4.30 %
Supplemental cash flow and other information related to leases was as follows:
(In thousands)Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases$50,852 
Leased assets obtained in exchange for new operating lease liabilities30,100 
Maturities of lease liabilities are as follows:
(In thousands)
2019$75,106 
2020137,898 
2021124,576 
2022113,104 
202399,637 
2024 and thereafter287,604 
Total lease payments$837,925 
Less: Interest120,041 
Total present value of lease liabilities$717,884 
As of June 30, 2019, the Company has additional operating lease obligations that have not yet commenced of approximately $340.9 million for retail stores to be delivered in 2020 with lease terms up to 15 years, and primarily related to a flagship store, which are not reflected in the table above.
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The following is a schedule of future minimum lease payments for non-cancelable real property and equipment operating leases as of December 31, 2018, as well as significant operating lease agreements entered into during the period after December 31, 2018 through the date of the 2018 Form 10-K:
(In thousands)
2019$142,648 
2020148,171 
2021154,440 
2022141,276 
2023128,027 
2024 and thereafter699,262 
Total future minimum lease payments$1,413,824 

5. Long Term Debt
Credit Facility
On March 8, 2019, the Company entered into an amended and restated credit agreement by and among the Company, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, PNC Bank, National Association, as syndication agent and the other lenders and arrangers party thereto (the "credit agreement"), amending and restating the Company's prior credit agreement. The credit agreement has a term of five years, maturing in March 2024, with permitted extensions under certain circumstances, and provides revolving credit commitments of up to $1.25 billion of borrowings, but no term loan borrowings, which were provided for under the prior credit agreement. As of June 30, 2019, there were no amounts outstanding under the revolving credit facility. As of December 31, 2018, there were no amounts outstanding under the revolving credit facility and $136.3 million of term loan borrowings outstanding. In January 2019, the Company prepaid the outstanding balance of $136.3 million on its term loans, without penalty.
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 $4.6 million of letters of credit outstanding as of June 30, 2019.
The credit agreement contains negative covenants that limit the Company's ability to engage in certain transactions, as well as financial covenants that require the Company to comply with specific consolidated leverage and interest coverage ratios. As of June 30, 2019, 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. During the three months ended June 30, 2019, there were no borrowings under the revolving credit facility. The weighted average interest rate under the revolving credit facility borrowings was 2.9% during the three months ended June 30, 2018, and 3.6% and 2.8% for the six months ended June 30, 2019 and 2018, respectively. The weighted average interest rate under the outstanding term loan was 3.3% and