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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, 2022
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
______________________________________
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) 468-2512 |
(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 Stock | UAA | New York Stock Exchange |
Class C Common Stock | UA | New 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 filer | ☑ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller 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 July 31, 2022 there were 188,688,514 shares of Class A Common Stock, 34,450,000 shares of Class B Convertible Common Stock and 232,097,295 shares of Class C Common Stock outstanding.
UNDER ARMOUR, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited; In thousands, except share data)
| | | | | | | | | | | |
| June 30, 2022 | | March 31, 2022 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 1,049,413 | | | $ | 1,009,139 | |
Accounts receivable, net (Note 3) | 693,636 | | | 702,197 | |
Inventories | 954,394 | | | 824,455 | |
Prepaid expenses and other current assets, net | 302,644 | | | 297,034 | |
Total current assets | 3,000,087 | | | 2,832,825 | |
Property and equipment, net (Note 4) | 609,923 | | | 601,365 | |
Operating lease right-of-use assets (Note 5) | 408,753 | | | 420,397 | |
Goodwill (Note 6) | 479,521 | | | 491,508 | |
Intangible assets, net (Note 7) | 9,910 | | | 10,580 | |
Deferred income taxes (Note 17) | 19,444 | | | 20,141 | |
Other long-term assets | 78,162 | | | 76,016 | |
Total assets | $ | 4,605,800 | | | $ | 4,452,832 | |
Liabilities and Stockholders' Equity | | | |
Current liabilities | | | |
Accounts payable | $ | 669,203 | | | $ | 560,331 | |
Accrued expenses | 373,045 | | | 317,963 | |
Customer refund liabilities (Note 11) | 157,487 | | | 159,628 | |
Operating lease liabilities (Note 5) | 131,438 | | | 134,833 | |
Other current liabilities | 127,507 | | | 125,840 | |
Total current liabilities | 1,458,680 | | | 1,298,595 | |
Long term debt, net of current maturities (Note 8) | 672,834 | | | 672,286 | |
Operating lease liabilities, non-current (Note 5) | 650,833 | | | 668,983 | |
Other long-term liabilities | 94,378 | | | 84,014 | |
Total liabilities | 2,876,725 | | | 2,723,878 | |
Stockholders' equity (Note 10) | | | |
Class A Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of June 30, 2022 and March 31, 2022; 188,668,560 shares issued and outstanding as of June 30, 2022 (March 31, 2022: 188,668,560) | 63 | | | 63 | |
Class B Convertible Common Stock, $0.0003 1/3 par value; 34,450,000 shares authorized, issued and outstanding as of June 30, 2022 and March 31, 2022 | 11 | | | 11 | |
Class C Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of June 30, 2022 and March 31, 2022; 232,025,851 shares issued and outstanding as of June 30, 2022 (March 31, 2022: 238,472,217) | 77 | | | 79 | |
Additional paid-in capital | 1,108,988 | | | 1,046,961 | |
Retained earnings | 654,599 | | | 721,926 | |
Accumulated other comprehensive income (loss) | (34,663) | | | (40,086) | |
Total stockholders' equity | 1,729,075 | | | 1,728,954 | |
Total liabilities and stockholders' equity | $ | 4,605,800 | | | $ | 4,452,832 | |
Commitments and Contingencies (Note 9)
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited; In thousands, except per share amounts)
| | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
Net revenues | $ | 1,349,057 | | | $ | 1,351,534 | |
Cost of goods sold | 718,860 | | | 682,713 | |
Gross profit | 630,197 | | | 668,821 | |
Selling, general and administrative expenses | 595,714 | | | 545,003 | |
Restructuring and impairment charges | — | | | 2,613 | |
Income (loss) from operations | 34,483 | | | 121,205 | |
Interest income (expense), net | (6,005) | | | (13,307) | |
Other income (expense), net | (14,241) | | | (38,494) | |
Income (loss) before income taxes | 14,237 | | | 69,404 | |
Income tax expense (benefit) | 5,657 | | | 10,027 | |
Income (loss) from equity method investments | (898) | | | (170) | |
Net income (loss) | $ | 7,682 | | | $ | 59,207 | |
| | | |
Basic net income (loss) per share of Class A, B and C common stock (Note 18) | $ | 0.02 | | | $ | 0.13 | |
Diluted net income (loss) per share of Class A, B and C common stock (Note 18) | $ | 0.02 | | | $ | 0.13 | |
| | | |
Weighted average common shares outstanding Class A, B and C common stock | | | |
Basic | 458,415 | | | 459,604 | |
Diluted | 468,167 | | | 462,286 | |
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited; In thousands)
| | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
Net income (loss) | $ | 7,682 | | | $ | 59,207 | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustment | (23,525) | | | 7,078 | |
Unrealized gain (loss) on cash flow hedges, net of tax benefit (expense) of $(9,179) and $706 for the three months ended June 30, 2022 and 2021, respectively. | 42,482 | | | (3,745) | |
Gain (loss) on intra-entity foreign currency transactions | (13,534) | | | 2,648 | |
Total other comprehensive income (loss) | 5,423 | | | 5,981 | |
Comprehensive income (loss) | $ | 13,105 | | | $ | 65,188 | |
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited; In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Class B Convertible Common Stock | | Class C Common Stock | | Additional Paid-in-Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
Balance as of March 31, 2021 | 188,622 | | | $ | 62 | | | 34,450 | | | $ | 11 | | | 233,935 | | | $ | 78 | | | $ | 1,072,401 | | | $ | 747,231 | | | $ | (49,584) | | | $ | 1,770,199 | |
Exercise of stock options | 3 | | | — | | | — | | | — | | | 4 | | | — | | | 17 | | | — | | | — | | | 17 | |
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements | — | | | — | | | — | | | — | | | (11) | | | — | | | — | | | (298) | | | — | | | (298) | |
Issuance of Class A Common Stock, net of forfeitures | — | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | |
Issuance of Class C Common Stock, net of forfeitures | — | | | — | | | — | | | — | | | 11,216 | | | 3 | | | 68 | | | — | | | — | | | 71 | |
Stock-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 11,532 | | | — | | | — | | | 11,532 | |
Comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 59,207 | | | 5,981 | | | 65,188 | |
Balance as of June 30, 2021 | 188,625 | | | $ | 63 | | | 34,450 | | | $ | 11 | | | 245,144 | | | $ | 81 | | | $ | 1,084,018 | | | $ | 806,140 | | | $ | (43,603) | | | $ | 1,846,710 | |
| | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2022 | 188,669 | | | $ | 63 | | | 34,450 | | | $ | 11 | | | 238,472 | | | $ | 79 | | | $ | 1,046,961 | | | $ | 721,926 | | | $ | (40,086) | | | $ | 1,728,954 | |
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (352) | | | — | | | (352) | |
Class C Common Stock repurchased | — | | | — | | | — | | | — | | | (6,669) | | | (2) | | | 49,659 | | | (74,657) | | | — | | | (25,000) | |
| | | | | | | | | | | | | | | | | | | |
Issuance of Class C Common Stock, net of forfeitures | — | | | — | | | — | | | — | | | 223 | | | — | | | 993 | | | — | | | — | | | 993 | |
Stock-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 11,375 | | | — | | | — | | | 11,375 | |
Comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 7,682 | | | 5,423 | | | 13,105 | |
Balance as of June 30, 2022 | 188,669 | | | $ | 63 | | | 34,450 | | | $ | 11 | | | 232,026 | | | $ | 77 | | | $ | 1,108,988 | | | $ | 654,599 | | | $ | (34,663) | | | $ | 1,729,075 | |
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited; In thousands)
| | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
Cash flows from operating activities | | | |
Net income (loss) | $ | 7,682 | | | $ | 59,207 | |
Adjustments to reconcile net income (loss) to net cash used in operating activities | | | |
Depreciation and amortization | 34,321 | | | 35,147 | |
Unrealized foreign currency exchange rate (gain) loss | 7,856 | | | (2,478) | |
Loss on extinguishment of senior convertible notes | — | | | 34,728 | |
Loss on disposal of property and equipment | 322 | | | 820 | |
Non-cash restructuring and impairment charges | — | | | (13) | |
Amortization of bond premium and debt issuance costs | 548 | | | 11,064 | |
Stock-based compensation | 11,375 | | | 11,533 | |
Deferred income taxes | (1,125) | | | (999) | |
Changes in reserves and allowances | 194 | | | (9,167) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 8,586 | | | 64,803 | |
Inventories | (134,210) | | | (26,862) | |
Prepaid expenses and other assets | (8,113) | | | (18,937) | |
Other non-current assets | 19,796 | | | 19,463 | |
Accounts payable | 96,319 | | | 107,332 | |
Accrued expenses and other liabilities | 43,524 | | | (23,647) | |
Customer refund liability | (2,528) | | | (13,481) | |
Income taxes payable and receivable | 2,949 | | | 4,310 | |
Net cash provided by (used in) operating activities | 87,496 | | | 252,823 | |
Cash flows from investing activities | | | |
Purchases of property and equipment | (35,747) | | | (19,668) | |
Sale of property and equipment | — | | | 485 | |
Earn-out from the sale of MyFitnessPal platform | 35,000 | | | — | |
Net cash provided by (used in) investing activities | (747) | | | (19,183) | |
Cash flows from financing activities | | | |
Payments on long-term debt and revolving credit facility | — | | | (300,001) | |
Proceeds from capped call | — | | | 53,000 | |
Common Shares Repurchased | (25,000) | | | — | |
Employee taxes paid for shares withheld for income taxes | (352) | | | (209) | |
Proceeds from exercise of stock options and other stock issuances | 993 | | | 89 | |
Net cash provided by (used in) financing activities | (24,359) | | | (247,121) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (21,454) | | | 15,681 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 40,936 | | | 2,200 | |
Cash, cash equivalents and restricted cash | | | |
Beginning of period | 1,022,126 | | | 1,359,680 | |
End of period | $ | 1,063,062 | | | $ | 1,361,880 | |
| | | |
Non-cash investing and financing activities | | | |
Change in accrual for property and equipment | $ | 4,677 | | | $ | 3,063 | |
| | | | | | | | | | | |
Reconciliation of cash, cash equivalents and restricted cash | June 30, 2022 | | June 30, 2021 |
Cash and cash equivalents | $ | 1,049,413 | | | $ | 1,349,793 | |
Restricted cash | 13,649 | | | 12,087 | |
Total cash, cash equivalents and restricted cash | $ | 1,063,062 | | | $ | 1,361,880 | |
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited; Tabular amounts in thousands, except share and per share data)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Business
Under Armour, Inc. (together with its wholly owned subsidiaries, the "Company") is a developer, marketer and distributor of branded athletic performance apparel, footwear and accessories. The Company creates products engineered to make athletes better with a vision to inspire performance solutions you never knew you needed and can't imagine living without. The Company's products are made, sold and worn worldwide.
Fiscal Year End Change
As previously disclosed, the Company changed its fiscal year end from December 31 to March 31, effective for the fiscal year beginning April 1, 2022. The Company's current fiscal year will run from April 1, 2022 through March 31, 2023 (Fiscal 2023). Consequently, there will be no Fiscal 2022.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements are presented in U.S. Dollars and include the accounts of Under Armour, Inc. and its wholly owned subsidiaries. Certain information in footnote disclosures normally included in annual financial statements were 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 upon consolidation.
The unaudited Condensed Consolidated Balance Sheet as of June 30, 2022 is derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ("Fiscal 2021"), filed with the SEC on February 23, 2022 ("Annual Report on Form 10-K for Fiscal 2021"), which should be read in conjunction with these unaudited Condensed Consolidated Financial Statements and the Company's Transition Report on Form 10-QT for the three months ended March 31, 2022, filed with the SEC on May 9, 2022. The unaudited results for the three months ended June 30, 2022, are not necessarily indicative of the results to be expected for Fiscal 2023, or any other portions thereof.
Management Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. These estimates, judgments and assumptions are evaluated on an on-going basis. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable at that time; however, actual results could differ from these estimates.
The COVID-19 pandemic continues to significantly impact the global economy. As the impacts of major global events continue to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment. The extent to which the evolving events impact the Company's financial statements will depend on a number of factors including, but not limited to, any new information that may emerge concerning the severity of these major events and the actions that governments around the world may take in response. While the Company believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of this reporting date, the Company may experience further impacts based on long-term effects on the Company's customers and the countries in which the Company operates. Please see the risk factors discussed in Part I, Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for Fiscal 2021.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Account Pronouncements
The Company assesses the applicability and impact of all Accounting Standard Updates ("ASUs"). There were no ASUs adopted during the first quarter of Fiscal 2023.
Recently Issued Accounting Pronouncements
The Company assessed all recently issued ASUs and determined them to be either not applicable or expected to have no material impact on its consolidated financial position and results of operations.
NOTE 3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company's allowance for doubtful accounts was established with information available as of June 30, 2022, including reasonable and supportable estimates of future risk.
The following table illustrates the activity in the Company's allowance for doubtful accounts:
| | | | | | | | | | | |
| Allowance for doubtful accounts - within accounts receivable, net | | Allowance for doubtful accounts - within prepaid expenses and other current assets (1) |
Balance at March 31, 2022 | $ | 7,113 | | | $ | 7,029 | |
Increases (decreases) to costs and expenses | (1,435) | | | — | |
Write-offs, net of recoveries | (296) | | | — | |
Balance at June 30, 2022 | $ | 5,382 | | | $ | 7,029 | |
(1) Includes an allowance pertaining to a royalty receivable.
NOTE 4. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
| | | | | | | | | | | |
| As of June 30, 2022 | | As of March 31, 2022 |
Leasehold and tenant improvements | $ | 456,804 | | | $ | 461,394 | |
Furniture, fixtures and displays | 259,555 | | | 263,749 | |
Buildings | 48,260 | | | 48,382 | |
Software | 344,366 | | | 339,722 | |
Office equipment | 131,054 | | | 132,452 | |
Plant equipment | 178,188 | | | 178,188 | |
Land | 83,626 | | | 83,626 | |
Construction in progress (1) | 93,955 | | | 64,869 | |
Other | 6,570 | | | 5,751 | |
Subtotal property and equipment | 1,602,378 | | | 1,578,133 | |
Accumulated depreciation | (992,455) | | | (976,768) | |
Property and equipment, net | $ | 609,923 | | | $ | 601,365 | |
(1) Construction in progress primarily includes costs incurred for construction of corporate offices, software systems, leasehold improvements and in-store fixtures and displays not yet placed in use.
Depreciation expense related to property and equipment was $33.9 million for the three months ended June 30, 2022 (three months ended June 30, 2021: $35.8 million).
NOTE 5. LEASES
The Company enters into operating leases domestically and internationally to lease certain 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. Short-term lease payments were not material for the three months ended June 30, 2022 and 2021.
Lease Costs and Other Information
The Company recognizes lease expense on a straight-line basis over the lease term.
The following table illustrates operating and variable lease costs, included in selling, general and administrative expenses within the Company's Condensed Consolidated Statements of Operations, for the periods indicated: | | | | | | | | | | | |
| Three months ended June 30, |
| 2022 | | 2021 |
Operating lease costs | $ | 35,555 | | | $ | 36,408 | |
Variable lease costs | $ | 3,623 | | | $ | 4,455 | |
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.
The weighted average remaining lease term and discount rate for the periods indicated below were as follows: | | | | | | | | | | | |
| As of June 30, 2022 | | As of March 31, 2022 |
Weighted average remaining lease term (in years) | 8.63 | | 8.69 |
Weighted average discount rate | 3.72 | % | | 3.72 | % |
Supplemental Cash Flow Information
The following table presents supplemental information relating to cash flow arising from lease transactions: | | | | | | | | | | | |
| Three months ended June 30, |
| 2022 | | 2021 |
Operating cash outflows from operating leases | $ | 41,865 | | | $ | 44,965 | |
Leased assets obtained in exchange for new operating lease liabilities | $ | 19,589 | | | $ | 8,974 | |
Maturity of Lease Liabilities
The following table presents the future minimum lease payments under the Company's operating lease liabilities as of June 30, 2022: | | | | | |
Fiscal year ending March 31, |
2023 (nine months ending) | $ | 122,234 | |
2024 | 144,557 | |
2025 | 121,993 | |
2026 | 91,302 | |
2027 | 72,574 | |
2028 and thereafter | 370,870 | |
Total lease payments | $ | 923,530 | |
Less: Interest | 141,259 | |
Total present value of lease liabilities | $ | 782,271 | |
As of June 30, 2022, the Company has additional operating lease obligations that have not yet commenced of approximately $3.9 million, which are not reflected in the table above.
NOTE 6. GOODWILL
The following table summarizes changes in the carrying amount of the Company's goodwill by reportable segment as of the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | EMEA | | Asia-Pacific | | Latin America | | Total |
Balance as of March 31, 2022 | $ | 301,371 | | | $ | 105,053 | | | $ | 85,084 | | | $ | — | | | $ | 491,508 | |
Effect of currency translation adjustment | — | | | (6,999) | | | (4,988) | | | — | | | (11,987) | |
Balance as of June 30, 2022 | $ | 301,371 | | | $ | 98,054 | | | $ | 80,096 | | | $ | — | | | $ | 479,521 | |
NOTE 7. INTANGIBLE ASSETS, NET
The following tables summarize the Company's intangible assets as of the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of June 30, 2022 |
| Useful Lives from Date of Acquisitions (in years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible assets subject to amortization: | | | | | | |
Technology | 5-7 | | $ | 2,536 | | | $ | (2,203) | | | $ | 333 | |
Customer relationships | 2-6 | | 8,317 | | | (3,153) | | | 5,164 | |
Lease-related intangible assets | 1-15 | | 8,997 | | | (8,810) | | | 187 | |
Other | 5-10 | | 475 | | | (439) | | | 36 | |
Total | | | $ | 20,325 | | | $ | (14,605) | | | $ | 5,720 | |
Indefinite-lived intangible assets | | | | | | | 4,190 | |
Intangible assets, net | | | | | | | $ | 9,910 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | As of March 31, 2022 |
| Useful Lives from Date of Acquisitions (in years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible assets subject to amortization: | | | | | | |
Technology | 5-7 | | $ | 2,536 | | | $ | (2,103) | | | $ | 433 | |
Customer relationships | 2-6 | | 8,552 | | | (2,893) | | | 5,659 | |
Lease-related intangible assets | 1-15 | | 9,112 | | | (8,892) | | | 220 | |
Other | 5-10 | | 475 | | | (427) | | | 48 | |
Total | | | $ | 20,675 | | | $ | (14,315) | | | $ | 6,360 | |
Indefinite-lived intangible assets | | | | | | | 4,220 | |
Intangible assets, net | | | | | | | $ | 10,580 | |
Amortization expense, which is included in selling, general and administrative expenses, was $0.5 million for the three months ended June 30, 2022 (three months ended June 30, 2021: $0.5 million).
The following is the estimated amortization expense for the Company's intangible assets as of June 30, 2022: | | | | | |
Fiscal year ending March 31, |
2023 (nine months ending) | $ | 1,458 | |
2024 | 1,483 | |
2025 | 1,444 | |
2026 | 1,326 | |
2027 | 9 | |
2028 and thereafter | — | |
Total Amortization expense of intangible assets | $ | 5,720 | |
NOTE 8. CREDIT FACILITY AND OTHER LONG TERM DEBT
The Company's outstanding debt consisted of the following: | | | | | | | | | | | |
| As of June 30, 2022 | | As of March 31, 2022 |
1.50% Convertible Senior Notes due 2024 | $ | 80,919 | | | $ | 80,919 | |
3.25% Senior Notes due 2026 | 600,000 | | | 600,000 | |
Total principal payments due | 680,919 | | | 680,919 | |
| | | |
Unamortized debt discount on Senior Notes | (1,004) | | | (1,067) | |
Unamortized debt issuance costs - Convertible Senior Notes | (574) | | | (677) | |
Unamortized debt issuance costs - Senior Notes | (2,132) | | | (2,266) | |
Unamortized debt issuance costs - Credit facility | (4,375) | | | (4,623) | |
Total amount outstanding | 672,834 | | | 672,286 | |
Less: | | | |
Current portion of long-term debt: | | | |
Credit Facility borrowings | — | | | — | |
| | | |
Non-current portion of long-term debt | $ | 672,834 | | | $ | 672,286 | |
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, and the other lenders and arrangers party thereto (the "credit agreement"). In May 2020, May 2021 and December 2021, the Company entered into the first, second and third amendments to the credit agreement, respectively (the credit agreement as amended, the "amended credit agreement" or the "revolving credit facility"). The amended credit agreement provides for revolving credit commitments of $1.1 billion and has a term that ends on December 3, 2026, with permitted extensions under certain circumstances. As of June 30, 2022 and March 31, 2022 there were no amounts outstanding under the revolving credit facility.
At the Company's request and a lender's consent, commitments under the amended credit agreement may be increased by up to $300.0 million in aggregate, subject to certain conditions as set forth in the amended credit agreement. Incremental borrowings are uncommitted and the availability thereof will depend on market conditions at the time the Company seeks to incur such borrowings.
Borrowings, if any, 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. As of June 30, 2022, there were $4.4 million of letters of credit outstanding (March 31, 2022 had $4.5 million of letters of credit outstanding).
The obligations of the Company under the amended credit agreement are guaranteed by certain domestic significant subsidiaries of Under Armour, Inc., subject to customary exceptions (the "subsidiary guarantors") and primarily secured by a first-priority security interest in substantially all of the assets of Under Armour, Inc. and the subsidiary guarantors, excluding real property, capital stock in and debt of subsidiaries of Under Armour, Inc. holding certain real property and other customary exceptions. The amended credit agreement provides for the permanent fall away of guarantees and collateral upon the Company's achievement of investment grade rating from two rating agencies.
The amended credit agreement contains negative covenants that, subject to significant exceptions, limit the Company's ability to, among other things: incur additional secured and unsecured indebtedness; pledge the assets as security; make investments, loans, advances, guarantees and acquisitions, (including investments in and loans to non-guarantor subsidiaries); undergo fundamental changes; sell assets outside the ordinary course of business; enter into transactions with affiliates; and make restricted payments.
The Company is also required to maintain a ratio of consolidated EBITDA, to consolidated interest expense of not less than 3.50 to 1.0 (the "interest coverage covenant") and the Company is not permitted to allow the ratio of consolidated total indebtedness to consolidated EBITDA to be greater than 3.25 to 1.0 (the "leverage covenant"), as described in more detail in the amended credit agreement. As of June 30, 2022, the Company was in compliance with the applicable covenants.
In addition, the amended 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 amended credit agreement, will be considered an event of default under the amended credit agreement.
The amended credit agreement implements SOFR as the replacement of LIBOR as a benchmark interest rate for U.S. dollar borrowings (and analogous benchmark rate replacements for borrowings in Yen, Canadian Dollars, Pound Sterling and Euro). Borrowings under the amended credit agreement bear interest at a rate per annum equal to, at the Company's option, either (a) an alternate base rate (for borrowings in U.S. dollars), (b) a term rate (for borrowings in U.S. dollars, Euro, Japaneses Yen or Canadian Dollars) or (c) a "risk free" rate (for borrowings in U.S. dollars or Pounds Sterling), 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 leverage ratio of consolidated total indebtedness to consolidated EBITDA and ranges between 1.00% to 1.75% (or, in the case of alternate base loans, 0.00% to 0.75%). The Company will also pay a commitment fee determined in accordance with the pricing grid on the average daily unused amount of the revolving credit facility and certain fees with respect to letters of credit. As of June 30, 2022, the commitment fee was 15 basis points.
1.50% Convertible Senior Notes
In May 2020, the Company issued $500.0 million aggregate principal amount of 1.50% convertible senior notes due 2024 (the "Convertible Senior Notes"). The Convertible Senior Notes bear interest at the rate of 1.50% per annum, payable semiannually in arrears on June 1 and December 1 of each year, beginning December 1, 2020. The Convertible Senior Notes will mature on June 1, 2024, unless earlier converted in accordance with their terms, redeemed in accordance with their terms or repurchased.
The net proceeds from the offering (including the net proceeds from the exercise of the over-allotment option) were $488.8 million, after deducting the initial purchasers' discount and estimated offering expenses paid by the Company, of which the Company used $47.9 million to pay the cost of the capped call transactions described below. The Company utilized $439.9 million to repay indebtedness that was outstanding under its revolving credit facility at the time, and to pay related fees and expenses.
The Convertible Senior Notes are not secured and are not guaranteed by any of the Company's subsidiaries. The indenture governing the Convertible Senior Notes does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries.
In May 2021 and August 2021, the Company entered into exchange agreements with certain holders of the Convertible Senior Notes, who agreed to exchange $250.0 million and approximately $169.1 million, respectively, in aggregate principal amount of the Convertible Senior Notes for cash and/or shares of the Company's Class C Common Stock, plus payment for accrued and unpaid interest (the "Exchanges"). In connection with the Exchanges, the Company paid approximately $300.0 million and $207.0 million cash, respectively, and issued approximately 11.1 million and 7.7 million shares of the Company's Class C Common Stock, respectively, to the exchanging holders. Additionally, the Company recognized losses on debt extinguishment of $34.7 million during the second quarter of Fiscal 2021 and $23.8 million during the third quarter of Fiscal 2021, which were recorded within Other Income (Expense), net on the Company's Condensed Consolidated Statements of Operations. Following the Exchanges, approximately $80.9 million aggregate principal amount of the Convertible Senior Notes remain outstanding.
The Convertible Senior Notes are convertible into cash, shares of the Company's Class C Common Stock or a combination of cash and shares of Class C Common Stock, at the Company's election, as described further below. The initial conversion rate is 101.8589 shares of the Company's Class C Common Stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an initial conversion price of approximately $9.82 per share of Class C Common Stock), subject to adjustment if certain events occur. Prior to the close of business on the business day immediately preceding January 1, 2024, holders may (at their option) convert their Convertible Senior Notes only upon satisfaction of one or more of the following conditions:
•during any calendar quarter commencing after the calendar quarter ended on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company's Class C Common Stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's Class C Common Stock and the conversion rate on each such trading day;
•upon the occurrence of specified corporate events or distributions on the Company's Class C Common Stock; or
•if the Company calls any Convertible Senior Notes for redemption prior to the close of business on the business day immediately preceding January 1, 2024.
On or after January 1, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Convertible Senior Notes at the conversion rate at any time irrespective of the foregoing conditions.
On or after December 6, 2022, the Company may redeem for cash all or any part of the Convertible Senior Notes, at its option, if the last reported sale price of the Company's Class C Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the aggregate principal amount of the Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
If the Company undergoes a fundamental change (as defined in the indenture governing the Convertible Senior Notes) prior to the maturity date, subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their Convertible Senior Notes in principal amounts of $1,000 or an integral multiple thereof at a price which will be equal to 100% of the aggregate principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Concurrently with the offering of the Convertible Senior Notes, the Company entered into privately negotiated capped call transactions with JPMorgan Chase Bank, National Association, HSBC Bank USA, National Association, and Citibank, N.A. (the "option counterparties"). The capped call transactions are expected generally to reduce potential dilution to the Company's Class C Common Stock upon any conversion of Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the aggregate principal amount of converted Convertible Senior Notes upon any conversion thereof, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the capped call transactions is initially $13.4750 per share of the Company's Class C Common Stock, representing a premium of 75% above the last reported sale price of the Company's Class C Common Stock on May 21, 2020, and is subject to certain adjustments under the terms of the capped call transactions.
In May 2021 and August 2021, concurrently with the Exchanges, the Company entered into, with each of the option counterparties, termination agreements relating to a number of options corresponding to the number of Convertible Senior Notes exchanged. Pursuant to such termination agreements, each of the option counterparties paid the Company a cash settlement amount in respect of the portion of capped call transactions being terminated. The Company received approximately $53.0 million and $38.6 million, respectively, in connection with such termination agreements related to the Exchanges.
The Convertible Senior Notes contain a cash conversion feature. Prior to the adoption of ASU 2020-06, the Company had separated it into liability and equity components. The Company valued the liability component based on its borrowing rate for a similar debt instrument that does not contain a conversion feature. The equity component, which was recognized as a debt discount, was valued as the difference between the face value of the Convertible Senior Notes and the fair value of the liability component.
The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method. As a result, the Convertible Senior Notes are no longer accounted for as separate liability and equity components, but rather a single liability. See Note 2 to the Condensed Consolidated Financial Statements included in Part I of the Company's Transition Report of Form 10-QT for the three months ended March 31, 2022 for more details.
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 "Senior Notes"). Interest is payable semi-annually on June 15 and December 15 beginning December 15, 2016. The Company may redeem some or all of the Senior Notes at any time, or from time
to time, at redemption prices described in the indenture governing the Senior Notes. The indenture governing the Senior Notes contains negative covenants that limit the Company's ability to engage in certain transactions and are subject to material exceptions described in the indenture. The Company incurred and deferred $5.4 million in financing costs in connection with the Senior Notes.
Interest Expense
Interest expense includes 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. Interest expense, net, was $6.0 million and $13.3 million for three months ended June 30, 2022 and 2021, respectively.
The following are the scheduled maturities of long term debt as of June 30, 2022: | | | | | |
Fiscal year ending March 31, |
2023 (nine months ending) | $ | — | |
2024 | — | |
2025 | 80,919 | |
2026 | — | |
2027 | 600,000 | |
2028 and thereafter | |
Total scheduled maturities of long term debt | $ | 680,919 | |
| |
Current maturities of long term debt | $ | — | |
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.
NOTE 9. COMMITMENTS AND CONTINGENCIES
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. However, the matters described below, if decided adversely to or settled by the Company, could result, individually or in the aggregate, in a liability material to the Company's consolidated financial position, results of operations or cash flows.
In re Under Armour Securities Litigation
On March 23, 2017, three separate securities cases previously filed against the Company in the United States District Court for the District of Maryland (the "District Court") were consolidated under the caption In re Under Armour Securities Litigation, Case No. 17-cv-00388-RDB (the "Consolidated Securities Action"). On November 6 and December 17, 2019, two additional putative securities class actions were filed in the District Court against the Company and certain of its current and former executives (captioned Patel v. Under Armour, Inc., No. 1:19-cv-03209-RDB ("Patel"), and Waronker v. Under Armour, Inc., No. 1:19-cv-03581-RDB ("Waronker"), respectively). On September 14, 2020, the District Court issued an order that, among other things, consolidated the Patel and Waronker cases into the Consolidated Securities Action.
The operative complaint (the "TAC") in the Consolidated Securities Action, was filed on October 14, 2020. The TAC asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against the Company and Mr. Plank and under Section 20A of the Exchange Act against Mr. Plank. The TAC alleges that the defendants supposedly concealed purportedly declining consumer demand for certain of the Company's products between the third quarter of 2015 and the fourth quarter of 2016 by making allegedly false and misleading statements regarding the Company's performance and future prospects and by engaging in undisclosed and allegedly improper sales and accounting practices, including shifting sales between quarterly periods allegedly to appear healthier. The TAC also alleges that the defendants purportedly failed to disclose that the Company was under investigation by and cooperating with the U.S. Department of Justice ("DOJ") and the U.S. Securities and Exchange Commission (the "SEC") since July 2017. The class period identified in the TAC is September 16, 2015 through November 1, 2019.
Discovery in the Consolidated Securities Action commenced on June 4, 2021 and is currently ongoing. On July 23, 2021, the Company and Mr. Plank filed an answer to the TAC denying all allegations of wrongdoing and asserting affirmative defenses to the claims asserted in the TAC. On December 1, 2021, the plaintiffs filed a motion
seeking, among other things, certification of the class they are seeking to represent in the Consolidated Securities Action. The Company and Mr. Plank have opposed this motion. The motion was fully briefed as of May 12, 2022 and is currently pending.
The Company continues to believe that the claims asserted in the Consolidated Securities Action are without merit and intends to defend the lawsuit vigorously.
Federal Court Derivative Complaints
In July 2018, a stockholder derivative complaint was filed in the District Court, in a case captioned Andersen v. Plank, et al. The complaint in the Andersen matter names Mr. Plank, certain other current and former members of the Company's Board of Directors and certain former Company executives as defendants, and names the Company as a nominal defendant. The complaint asserts breach of fiduciary duty and unjust enrichment claims against the individual defendants, and seeks damages on behalf of the Company and certain corporate governance related actions. The complaint includes allegations challenging, among other things, the Company's disclosures related to growth and consumer demand for certain of the Company's products and stock sales by certain individual defendants.
In September 2020, two additional derivative complaints were filed in the District Court (in cases captioned Olin v. Plank, et al., and Smith v. Plank, et al., respectively). On November 20, 2020, another derivative complaint was filed in the District Court, in a case captioned Viskovich v. Plank, et al. The complaints in the Olin, Smith, and Viskovich cases name Mr. Plank, certain other current and former members of the Company's Board of Directors, and certain current and former Company executives as defendants, and name the Company as a nominal defendant. The complaints in these actions assert allegations similar to those in the TAC filed in the Consolidated Securities Action matter discussed above, including allegations challenging (i) the Company's disclosures related to growth and consumer demand for certain of the Company's products; (ii) the Company's practice of shifting sales between quarterly periods supposedly to appear healthier and its purported failure to disclose that practice; (iii) the Company's internal controls with respect to revenue recognition and inventory management; (iv) the Company's supposed failure to timely disclose investigations by the SEC and DOJ; and/or (v) the compensation paid to the Company's directors and executives while the alleged wrongdoing was occurring. The complaints assert breach of fiduciary duty, unjust enrichment, gross mismanagement, and/or corporate waste claims against the individual defendants. The Viskovich complaint also asserts a contribution claim against certain defendants under the federal securities laws. These complaints seek damages on behalf of the Company and certain corporate governance related actions.
On January 27, 2021, the District Court entered an order consolidating for all purposes the Andersen, Olin, Smith and Viskovich actions into a single action under the caption Andersen v. Plank, et al. (the "Federal Court Derivative Action"). In February 2021, counsel for the Smith and Olin plaintiffs, on the one hand, and counsel for the Andersen and Viskovich plaintiffs, on the other hand, filed motions seeking to be appointed as lead counsel in the Federal Court Derivative Action. These motions are currently pending.
The Company believes that the claims asserted in the Federal Court Derivative Action are without merit and intends to defend this matter 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.
Contingencies
In accordance with Accounting Standards Codification (“ASC”) Topic 450 “Contingencies” (“Topic 450”), the Company establishes accruals for contingencies when (i) the Company believes it is probable that a loss will be incurred and (ii) the amount of the loss can be reasonably estimated. If the reasonable estimate is a range, the Company will accrue the best estimate in that range; where no best estimate can be determined, the Company will accrue the minimum. During the three months ended June 30, 2022, the Company estimated its liability and recorded $10 million in respect of certain ongoing legal proceedings summarized above. The timing of the resolution is unknown and the amount of loss ultimately incurred in connection with these matters may be substantially higher or lower than the amount accrued for these matters, and the Company expects a portion of the loss, if any is incurred, to be covered by the Company’s insurance. Legal proceedings for which no accrual has been established are disclosed to the extent required by ASC 450.
From time to time, the Company’s view regarding probability of loss with respect to outstanding legal proceedings will change, proceedings for which the Company is able to estimate a loss or range of loss will change, and the estimates themselves will change. In addition, while many matters presented in financial disclosures involve significant judgment and may be subject to significant uncertainties, estimates with respect to legal proceedings are subject to particular uncertainties. Other than as described above, the Company believes that all current
proceedings are routine in nature and incidental to the conduct of its business. However, the matters described above, if decided adversely to or settled by the Company, could result, individually or in the aggregate, in a liability material to the Company's consolidated financial position, results of operations or cash flows.
NOTE 10. STOCKHOLDERS' EQUITY
The Company's Class A Common Stock and Class B Convertible Common Stock have an authorized number of 400.0 million shares and 34.45 million shares, respectively, and each have a par value of $0.0003 1/3 per share as of June 30, 2022. Holders of Class A Common Stock and Class B Convertible Common Stock have identical rights, including liquidation preferences, except that the holders of Class A Common Stock are entitled to one vote per share and holders of Class B Convertible Common Stock are entitled to 10 votes per share on all matters submitted to a stockholder vote. Class B Convertible Common Stock may only be held by Kevin Plank, the Company's founder, Executive Chairman and Brand Chief, or a related party of Mr. Plank, as defined in the Company's charter. As a result, Mr. Plank has a majority voting control over the Company. Upon the transfer of shares of Class B Convertible Stock to a person other than Mr. Plank or a related party of Mr. Plank, the shares automatically convert into shares of Class A Common Stock on a one-for-one basis. In addition, all of the outstanding shares of Class B Convertible Common Stock will automatically convert into shares of Class A Common Stock on a one-for-one basis upon the death or disability of Mr. Plank or on the record date for any stockholders' meeting upon which the shares of Class A Common Stock and Class B Convertible Common Stock beneficially owned by Mr. Plank is less than 15% of the total shares of Class A Common Stock and Class B Convertible Common Stock outstanding or upon the other events specified in the Class C Articles Supplementary to the Company's charter as documented below. Holders of the Company's common stock are entitled to receive dividends when and if authorized and declared out of assets legally available for the payment of dividends.
The Company's Class C Common Stock has an authorized number of 400.0 million shares and have a par value of $0.0003 1/3 per share as of June 30, 2022. The terms of the Class C Common Stock are substantially identical to those of the Company's Class A Common Stock, except that the Class C Common Stock has no voting rights (except in limited circumstances), will automatically convert into Class A Common Stock under certain circumstances and includes provisions intended to ensure equal treatment of Class C Common Stock and Class B Common Stock in certain corporate transactions, such as mergers, consolidations, statutory share exchanges, conversions or negotiated tender offers, and including consideration incidental to these transactions.
Share Repurchase Program
On February 23, 2022, the Company's Board of Directors authorized the Company to repurchase up to $500 million (exclusive of fees and commissions) of outstanding shares of the Company's Class C Common Stock over the next two years. The Class C Common Stock may be repurchased from time to time at prevailing prices in the open market, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, via private purchases through forward, derivative, accelerated share repurchase transactions or otherwise, subject to applicable regulatory restrictions on volume, pricing and timing. The timing and amount of any repurchases will depend on market conditions, the Company's financial condition, results of operations, liquidity and other factors.
On February 24, 2022, the Company entered into master confirmations, including supplemental confirmations (collectively, the "February ASR Agreements"), of accelerated share repurchase transactions with each of JPMorgan Chase Bank, National Association, Bank of America, N.A. and Citibank, N.A. (collectively the "Dealers") to repurchase $300 million of the Company's Class C Common Stock.
During the three months ended March 31, 2022, pursuant to the February ASR Agreements, the Company pre-paid $300.0 million to the Dealers and received an aggregate initial delivery of approximately 16.2 million shares of Class C Common Stock from the Dealers, which were immediately retired. As a result, $240.0 million was recorded to retained earnings to reflect the difference between the market price of the Class C Common Stock repurchased and its par value. Subsequently, in May 2022, the final settlement under the February ASR Agreement occurred and the Company received and immediately retired an additional approximately 4.1 million shares of its Class C Common Stock and recorded an additional $51.5 million to retained earnings.
On May 26, 2022, the Company entered into a master confirmation, including a supplemental confirmation (the "May ASR Agreement" and together with the "February ASR Agreements" the "ASR Agreements"), of an accelerated share repurchase transaction with HSBC Bank USA, National Association ("HSBC") to repurchase $25.0 million of the Company's Class C Common Stock.
During the three months ended June 30, 2022, pursuant to the May ASR Agreement, the Company pre-paid $25.0 million to HSBC and received a total of 2.6 million shares of Class C Common Stock from HSBC, which were immediately retired. As a result, $23.1 million was recorded to retained earnings to reflect the difference between the market price of the Class C Common Stock repurchased and its par value.
The final number of shares that the Company ultimately repurchased under the ASR Agreements was determined based on the average of the Rule 10b-18 volume-weighted average prices of the Company’s Class C Common Stock during the terms of the transactions, less an agreed discount, and subject to adjustments pursuant to the terms of the ASR Agreements.
NOTE 11. REVENUES
The following tables summarize the Company's net revenues by product category and distribution channels: | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
Apparel | $ | 868,428 | | | $ | 874,193 | |
Footwear | 347,251 | | | 342,641 | |
Accessories | 96,831 | | | 111,503 | |
Net Sales | 1,312,510 | | | 1,328,337 | |
License revenues | 28,135 | | | 23,261 | |
Corporate Other | 8,412 | | | (64) | |
Total net revenues | $ | 1,349,057 | | | $ | 1,351,534 | |
| | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
Wholesale | $ | 791,686 | | | $ | 767,611 | |
Direct-to-consumer | 520,824 | | | 560,726 | |
Net Sales | 1,312,510 | | | 1,328,337 | |
License revenues | 28,135 | | | 23,261 | |
| | | |
Corporate Other | 8,412 | | | (64) | |
Total net revenues | $ | 1,349,057 | | | $ | 1,351,534 | |
The Company records reductions to revenue for estimated customer returns, allowances, markdowns and discounts. These reserves are included within customer refund liability and the value of the inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. The following table presents the customer refund liability, as well as the associated value of inventory for the periods indicated: | | | | | | | | | | | |
| As of June 30, 2022 | | As of March 31, 2022 |
Customer refund liability | $ | 157,487 | | | $ | 159,628 | |
Inventory associated with the reserves | $ | 48,380 | | | $ | 44,291 | |
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 digital fitness applications and royalty arrangements, included in other current and other long-term liabilities, and gift cards, included in accrued expenses on the Company's Condensed Consolidated Balance Sheets. As of June 30, 2022 and March 31, 2022, contract liabilities were $32.0 million and $35.3 million, respectively.
During the three months ended June 30, 2022, the Company recognized approximately $4.8 million of revenue that was previously included in contract liabilities as of March 31, 2022. During the three months ended
June 30, 2021, the Company recognized approximately $4.8 million of revenue that was previously included in contract liabilities as of March 31, 2021. 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.
NOTE 12. RESTRUCTURING AND RELATED IMPAIRMENT CHARGES
During Fiscal 2020, the Company's Board of Directors approved a restructuring plan ranging between $550 million to $600 million in costs (the "2020 restructuring plan") designed to rebalance the Company's cost base to further improve profitability and cash flow generation. The Company concluded the 2020 restructuring plan during the three months ended March 31, 2022.
Restructuring and related impairment charges and recoveries require the Company to make certain judgments and estimates regarding the amount and timing as to when these charges or recoveries occur. The estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, the Company conducts an evaluation of the related liabilities and expenses and revises its assumptions and estimates as appropriate, as new or updated information becomes available. No adjustments were made during the three months ended June 30, 2022.
All restructuring and related impairment charges are included in the Company's Corporate Other segment. A summary of the activity in the restructuring reserve related to the Company's 2020 restructuring plan, as well as prior restructuring plans in 2018 and 2017 are as follows: | | | | | | | | | | | | | |
| Employee Related Costs | | Contract Exit Costs | | |
Balance at March 31, 2022 | $ | 2,672 | | | $ | 78,237 | | | |
Net additions (recoveries) charged to expense | — | | | — | | | |
Cash payments charged against reserve | (1,057) | | | (3,572) | | | |
Foreign exchange and other | (62) | | | (1,824) | | | |
Balance at June 30, 2022 | $ | 1,553 | | | $ | 72,841 | | | |
NOTE 13. OTHER EMPLOYEE BENEFITS
The Company offers a 401(k) Deferred Compensation Plan for the benefit of eligible employees. Employee contributions are voluntary and subject to Internal Revenue Service limitations. The Company matches a portion of the participant's contribution and recorded expense of $1.6 million and $2.5 million for the three months ended June 30, 2022 and 2021, respectively.
In addition, the Company offers the Under Armour, Inc. Deferred Compensation Plan which allows a select group of management or highly compensated employees, as approved by the Human Capital and Compensation Committee of the Board of Directors, to make an annual base salary and/or bonus deferral for each year. As of June 30, 2022 and March 31, 2022, the Deferred Compensation Plan obligations were $12.2 million and $14.2 million, respectively, and were included in other long term liabilities on the Condensed Consolidated Balance Sheets.
The Company established a Rabbi Trust to fund obligations to participants in the Deferred Compensation Plan. As of June 30, 2022 and March 31, 2022, the assets held in the Rabbi Trust were TOLI policies with cash-surrender values of $7.2 million and $8.4 million, respectively. These assets are consolidated and are included in other long term assets on the Condensed Consolidated Balance Sheets. Refer to Note 15 for a discussion of the fair value measurements of the assets held in the Rabbi Trust and the Deferred Compensation Plan obligations.
NOTE 14. STOCK BASED COMPENSATION
The Under Armour, Inc. Third Amended and Restated 2005 Omnibus Long-Term Incentive Plan as amended (the "2005 Plan") provides for the issuance of stock options, restricted stock, restricted stock units and other equity awards to officers, directors, key employees and other persons. The 2005 Plan terminates in 2029. As of June 30, 2022, 8.3 million Class A shares and 24.1 million Class C shares are available for future grants of awards under the 2005 Plan.
Awards Granted to Employees and Non-Employee Directors
Total stock-based compensation expense associated with awards granted to employees and non-employee directors for the three months ended June 30, 2022 and 2021 was $11.4 million and $11.5 million, respectively. As of June 30, 2022, the Company had $109.7 million of unrecognized compensation expense related to these awards expected to be recognized over a weighted average period of 2.48 years. Refer to "Stock Options" and "Restricted Stock and Restricted Stock Unit Awards" below for further information on these awards.
A summary of each of these plans is as follows:
Employee Stock Compensation Plan
Stock options, restricted stock and restricted stock unit awards under the 2005 Plan generally vest ratably over a period of two to five years. The contractual term for stock options is generally 10 years from the date of grant. The Company generally receives a tax deduction for any ordinary income recognized by a participant in respect to an award under the 2005 Plan.
Non-Employee Director Compensation Plan
The Company's Non-Employee Director Compensation Plan (the "Director Compensation Plan") provides for cash compensation and equity awards to non-employee directors of the Company under the 2005 Plan. Non-employee directors have the option to defer the value of their annual cash retainers as deferred stock units in accordance with the Under Armour, Inc. Non-Employee Deferred Stock Unit Plan (the "DSU Plan"). Each new non-employee director receives an award of restricted stock units upon the initial election to the Board of Directors, with the units covering stock valued at $100 thousand on the grant date and vesting in three equal annual installments. In addition, each non-employee director receives, following each annual stockholders' meeting, a grant under the 2005 Plan of restricted stock units covering stock valued at $150 thousand on the grant date. However, in May 2022, following the 2022 annual stockholders' meeting, each non-employee director received a grant under the 2005 plan of restricted stock units covering stock valued at $187.5 thousand to account for the Company's change in fiscal year. Each award vests 100% on the date of the next annual stockholders' meeting following the grant date.
The receipt of the shares otherwise deliverable upon vesting of the restricted stock units automatically defers into deferred stock units under the DSU Plan. Under the DSU Plan each deferred stock unit represents the Company’s obligation to issue one share of the Company's Class A or Class C Common Stock with the shares delivered six months following the termination of the director's service. The Company had 0.8 million deferred stock units outstanding as of June 30, 2022.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "ESPP") allows for the purchase of Class A Common Stock and Class C Common Stock by all eligible employees at a 15% discount from fair market value subject to certain limits as defined in the ESPP. As of June 30, 2022, 2.7 million Class A shares and 1.5 million Class C shares are available for future purchases under the ESPP. During the three months ended June 30, 2022 and 2021, 121.4 thousand and 61.0 thousand Class C shares were purchased under the ESPP, respectively.
Awards granted to Marketing Partners
In addition to the plans discussed above, the Company may also, from time to time, issue deferred stock units or restricted stock units to certain of our marketing partners in connection with their entering into endorsement and other marketing services agreements with us. The terms of each agreement set forth the number of units to be granted and the delivery dates for the shares, which range over a multi-year period, depending on the contract.
Total stock-based compensation expense related to these awards for the three months ended June 30, 2022 and 2021 was $0.8 million and $0.9 million, respectively. As of June 30, 2022, we had $6.8 million of unrecognized compensation expense associated with these awards expected to be recognized over a weighted average period of 2.29 years.
Summary by Award Classification:
Stock Options
A summary of the Company's stock options activity for the three months ended June 30, 2022 is presented below: | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Total Intrinsic Value |
Outstanding at March 31, 2022 | 1,578 | | | $ | 19.44 | | | 5.82 | | $ | 217 | |
Granted, at fair market value | — | | | — | | | | | |
Exercised | — | | | — | | | | | |
Forfeited | — | | | — | | | | | |
Outstanding at June 30, 2022 | 1,578 | | | $ | 19.44 | | | 5.57 | | $ | — | |
Options exercisable at June 30, 2022 | 1,369 | | | $ | 19.92 | | | 5.31 | | $ | — | |
Restricted Stock and Restricted Stock Unit Awards
A summary of the Company's restricted stock and restricted stock unit awards activity for the three months ended June 30, 2022 is presented below:
| | | | | | | | | | | |
| Number of Restricted Shares | | Weighted Average Grant Date Fair Value |
Outstanding at March 31, 2022 | 7,807 | | | $ | 16.57 | |
Granted | 1,954 | | | 9.17 | |
Forfeited | (336) | | | 14.28 | |
Vested | (248) | | | 10.47 | |
Outstanding at June 30, 2022 | 9,177 | | | $ | 15.17 | |
Included in the table above are 1.2 million performance-based restricted stock units awarded to certain executives and key employees under the 2005 Plan during the three months ended June 30, 2022. The performance-based restricted stock units awarded have a weighted average fair value of $9.13 and have vesting that is tied to the achievement of certain combined annual revenue and operating income targets. During the three months ended June 30, 2022, the Company deemed the achievement of these targets probable and recorded $0.4 million of compensation expense related to these awards.
NOTE 15. 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:
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Level 1: | Observable inputs such as quoted prices in active markets; |
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Level 2: | Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |
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Level 3: | Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The Company's financial assets (liabilities) measured at fair value on a recurring basis consisted of the following types of instruments as of the following periods:
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| June 30, 2022 | | March 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Derivative foreign currency contracts (see Note 16) | $ | — | | | $ | 49,023 | | | $ | — | | | $ | — | | | $ | 988 | | | $ | — | |
TOLI policies held by the Rabbi Trust (see Note 13) | $ | — | | | $ | 7,176 | | | $ | — | | | $ | |