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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 September 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-20190930_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 October 31, 2019 there were 188,201,612 shares of Class A Common Stock, 34,450,000 shares of Class B Convertible Common Stock and 228,913,746 Class C Common Stock outstanding.


Table of Contents
UNDER ARMOUR, INC.
September 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)
September 30,
2019
December 31,
2018
September 30,
2018
Assets
Current assets
Cash and cash equivalents$416,603  $557,403  $168,682  
Accounts receivable, net843,495  652,546  867,074  
Inventories906,544  1,019,496  1,173,115  
Prepaid expenses and other current assets292,447  364,183  378,159  
Total current assets2,459,089  2,593,628  2,587,030  
Property and equipment, net778,894  826,868  821,078  
Operating lease right-of-use assets595,832  —  —  
Goodwill541,798  546,494  551,208  
Intangible assets, net37,811  41,793  43,792  
Deferred income taxes90,860  112,420  86,436  
Other long term assets129,481  123,819  137,625  
Total assets$4,633,765  $4,245,022  $4,227,169  
Liabilities and Stockholders’ Equity
Current liabilities
Revolving credit facility, current$  $  $75,000  
Accounts payable483,627  560,884  499,467  
Accrued expenses309,305  340,415  303,399  
Customer refund liabilities209,785  301,421  303,457  
Operating lease liabilities119,446  —  —  
Current maturities of long term debt  25,000  25,000  
Other current liabilities77,498  88,257  93,416  
Total current liabilities1,199,661  1,315,977  1,299,739  
Long term debt, net of current maturities591,995  703,834  703,455  
Operating lease liabilities, non-current588,490  —  —  
Other long term liabilities99,953  208,340  218,054  
Total liabilities2,480,099  2,228,151  2,221,248  
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 September 30, 2019, December 31, 2018 and September 30, 2018; 188,201,145 shares issued and outstanding as of September 30, 2019, 187,710,319 shares issued and outstanding as of December 31, 2018, and 187,611,121 shares issued and outstanding as of September 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 September 30, 2019, December 31, 2018 and September 30, 2018.
11  11  11  
Class C Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of September 30, 2019, December 31, 2018 and September 30, 2018; 228,881,215 shares issued and outstanding as of September 30, 2019, 226,421,963 shares issued and outstanding as of December 31, 2018, and 226,263,389 shares issued and outstanding as of September 30, 2018.
76  75  75  
Additional paid-in capital960,451  916,628  915,449  
Retained earnings1,242,437  1,139,082  1,134,684  
Accumulated other comprehensive loss(49,371) (38,987) (44,360) 
Total stockholders’ equity2,153,666  2,016,871  2,005,921  
Total liabilities and stockholders’ equity$4,633,765  $4,245,022  $4,227,169  
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 September 30,Nine Months Ended September 30,
 2019201820192018
Net revenues$1,429,456  $1,442,976  $3,825,907  $3,803,205  
Cost of goods sold739,558  777,769  2,036,901  2,087,961  
Gross profit689,898  665,207  1,789,006  1,715,244  
Selling, general and administrative expenses550,978  527,640  1,626,309  1,594,893  
Restructuring and impairment charges  18,601    134,920  
Income (loss) from operations138,920  118,966  162,697  (14,569) 
Interest expense, net(5,655) (9,151) (15,881) (26,266) 
Other expense, net(429) (4,294) (2,224) (9,475) 
Income (loss) before income taxes132,836  105,521  144,592  (50,310) 
Income tax expense29,344  30,874  31,735  691  
Income (loss) from equity method investment(1,177) 619  (5,414) 481  
Net income (loss)$102,315  $75,266  $107,443  $(50,520) 
Basic net income (loss) per share of Class A, B and C common stock$0.23  $0.17  $0.24  $(0.11) 
Diluted net income (loss) per share of Class A, B and C common stock$0.23  $0.17  $0.24  $(0.11) 
Weighted average common shares outstanding Class A, B and C common stock
Basic451,385  447,070  450,739  444,931  
Diluted454,695  451,035  454,047  444,931  
See accompanying notes.
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Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2019201820192018
Net income (loss)$102,315  $75,266  $107,443  $(50,520) 
Other comprehensive loss:
Foreign currency translation adjustment(12,111) (1,042) (4,713) (16,861) 
Unrealized gain (loss) on cash flow hedge, net of tax benefit (expense) of ($2,520) and $731 for the three months ended September 30, 2019 and 2018, respectively, and $632 and ($5,362) for the nine months ended September 30, 2019 and 2018, respectively.
7,372  (1,658) (1,338) 15,677  
Loss on intra-entity foreign currency transactions(5,140) (3,171) (4,333) (4,965) 
Total other comprehensive loss(9,879) (5,871) (10,384) (6,149) 
Comprehensive income (loss)$92,436  $69,395  $97,059  $(56,669) 
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 June 30, 2018186,051  $62  34,450  $11  224,382  $75  $901,851  $1,060,402  $(38,489) $1,923,912  
Exercise of stock options34  —  —  —  143  —  406  —  —  406  
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements—  —  —  (50) —  —  (984) —  (984) 
Issuance of Class A Common Stock, net of forfeitures1,526  —  —  —  —  —  —  —  —  —  
Issuance of Class C Common Stock, net of forfeitures—  —  —  —  1,788  —  1,420  —  —  1,420  
Stock-based compensation expense—  —  —  —  —  —  11,772  —  —  11,772  
Comprehensive loss—  —  —  —  —  —  —  75,266  (5,871) 69,395  
Balance as of September 30, 2018187,611  $62  34,450  $11  226,263  $75  $915,449  $1,134,684  $(44,360) $2,005,921  
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 options481  1  —  —  601  —  6,317  —  —  6,318  
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements(23) —  —  —  (134) —  —  (2,744) —  (2,744) 
Issuance of Class A Common Stock, net of forfeitures1,896  —  —  —  —  —  —  —  —  —  
Issuance of Class C Common Stock, net of forfeitures—  —  —  —  3,421  1  4,419  —  —  4,420  
Impact of adoption of accounting standard updates—  —  —  —  —  —  —  3,507  —  3,507  
Stock-based compensation expense—  —  —  —  —  —  32,447  —  —  32,447  
Comprehensive loss—  —  —  —  —  —  —  (50,520) (6,149) (56,669) 
Balance as of September 30, 2018187,611  $62  34,450  $11  226,263  $75  $915,449  $1,134,684  $(44,360) $2,005,921  
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 June 30, 2019188,144  $62  34,450  $11  228,653  $76  $946,488  $1,141,129  $(39,492) $2,048,274  
Exercise of stock options40  —  —  —  34  —  265  —  —  265  
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements—  —  —  —  (59) —  —  (1,007) —  (1,007) 
Issuance of Class A Common Stock, net of forfeitures17  —  —  —  —  —  —  —  —  —  
Issuance of Class C Common Stock, net of forfeitures—  —  —  —  253  —  1,285  —  —  1,285  
Stock-based compensation expense—  —  —  —  —  —  12,413  —  —  12,413  
Comprehensive income (loss)—  —  —  —  —  —  —  102,315  (9,879) 92,436  
Balance as of September 30, 2019188,201  $62  34,450  $11  228,881  $76  $960,451  $1,242,437  $(49,371) $2,153,666  
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 options355  —  —  —  271  —  1,638  —  —  1,638  
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements(15) —  —  —  (217) —  —  (4,088) —  (4,088) 
Issuance of Class A Common Stock, net of forfeitures151  —  —  —  —  —  —  —  —  —  
Issuance of Class C Common Stock, net of forfeitures—  —  —  —  2,405  1  4,137  —  —  4,138  
Stock-based compensation expense—  —  —  —  —  —  38,048  —  —  38,048  
Comprehensive income (loss)—  —  —  —  —  —  —  107,443  (10,384) 97,059  
Balance as of September 30, 2019188,201  $62  34,450  $11  228,881  $76  $960,451  $1,242,437  $(49,371) $2,153,666  
See accompanying notes.
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Under Armour, Inc. and Subsidiaries`
Unaudited Consolidated Statements of Cash Flows
(In thousands)
 Nine Months Ended September 30,
 20192018
Cash flows from operating activities
Net income (loss)$107,443  $(50,520) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization140,443  135,029  
Unrealized foreign currency exchange rate gain12,885  9,350  
Loss on disposal of property and equipment2,884  3,378  
Impairment charges  9,930  
Amortization of bond premium190  190  
Stock-based compensation38,048  32,445  
Excess tax benefit (loss) from stock-based compensation arrangements  (3) 
Deferred income taxes23,827  (9,965) 
Changes in reserves and allowances(22,778) (239,073) 
Changes in operating assets and liabilities:
Accounts receivable(187,585) (23,846) 
Inventories123,364  (30,390) 
Prepaid expenses and other assets73,753  (97,519) 
Other non-current assets5,939  (1,596) 
Accounts payable(67,336) (37,353) 
Accrued expenses and other liabilities(52,466) 113,297  
Customer refund liability(88,710) 304,685  
Income taxes payable and receivable(7,433) 778  
Net cash provided by operating activities102,468  118,817  
Cash flows from investing activities
Purchases of property and equipment(105,767) (121,439) 
Sale of property and equipment  11,285  
Purchases of other assets(1,273) (4,861) 
Purchase of equity method investment  (39,208) 
Net cash used in investing activities(107,040) (154,223) 
Cash flows from financing activities
Proceeds from long term debt and revolving credit facility25,000  465,000  
Payments on long term debt and revolving credit facility(162,817) (580,000) 
Employee taxes paid for shares withheld for income taxes(4,088) (2,743) 
Proceeds from exercise of stock options and other stock issuances5,797  10,739  
Payments of debt financing costs(2,661) (11) 
Other financing fees77  306  
Net cash used in financing activities(138,692) (106,709) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash4,809  520  
Net decrease in cash, cash equivalents and restricted cash(138,455) (141,595) 
Cash, cash equivalents and restricted cash
Beginning of period566,060  318,135  
End of period$427,605  $176,540  
Non-cash investing and financing activities
Change in accrual for property and equipment$(15,620) $(26,566) 
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 nine months ended September 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 nine months ended September 30, 2019 includes $5.5 million of expense that was understated in prior periods. The Company concluded that the error was not material to any prior or interim periods presented.
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)September 30, 2019December 31, 2018September 30, 2018
Cash and cash equivalents$416,603  $557,403  $168,682  
Restricted cash11,002  8,657  7,858  
Total Cash, cash equivalents and restricted cash$427,605  $566,060  $176,540  
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. One of the Company's customers accounted for 10% of accounts receivable as of September 30, 2019. None of the Company's customers accounted for more than 10% of accounts receivable as of December 31, 2018 and September 30, 2018, respectively. For the three and nine months ended September 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
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amount. Under each agreement, the Company may sell up to $140.0 million and $50.0 million, respectively, 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 September 30, 2019, December 31, 2018 and September 30, 2018, no amounts remained 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 September 30, 2019, December 31, 2018, and September 30, 2018, the allowance for doubtful accounts was $16.5 million, $22.2 million and $24.0 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 September 30, 2019, December 31, 2018, and September 30, 2018, contract liabilities were $60.6 million, $55.0 million and $31.9 million, respectively.
For the three and nine months ended September 30, 2019, the Company recognized $9.2 million and $22.6 million of revenue that was previously included in contract liabilities as of December 31, 2018. For the three and nine months ended September 30, 2018, the Company recognized $4.5 million and $