UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________
Form 10-K
______________________________________________
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015
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) 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 Stock | New York Stock Exchange | |
(Title of each class) | (Name of each exchange on which registered) | |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes þ No ¨
Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 or Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ | Accelerated filer ¨ | |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
As of June 30, 2015, the last business day of our most recently completed second fiscal quarter, the aggregate market value of the registrant’s Class A Common Stock held by non-affiliates was $15,034,547,119.
As of January 31, 2016, there were 181,646,468 shares of Class A Common Stock and 34,450,000 shares of Class B Convertible Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Under Armour, Inc.’s Proxy Statement for the Annual Meeting of Stockholders to be held on April 28, 2016 are incorporated by reference in Part III of this Form 10-K.
`UNDER ARMOUR, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
ITEM 1. | BUSINESS |
General
Our principal business activities are the development, marketing and distribution of branded performance apparel, footwear and accessories for men, women and youth. The brand’s moisture-wicking fabrications are engineered in many designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. Our products are sold worldwide and are worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as by consumers with active lifestyles.
Our Connected Fitness strategy is focused on connecting with our consumers and increasing awareness and sales of our existing product offerings through our global wholesale and direct to consumer channels. We plan to engage and grow this community by developing innovative applications, services and other digital solutions to impact how athletes and fitness-minded individuals train, perform and live.
Our net revenues are generated primarily from the wholesale sales of our products to national, regional, independent and specialty retailers. We also generate net revenue from the sale of our products through our direct to consumer sales channel, which includes our brand and factory house stores and websites, from product licensing and from digital platform licensing and subscriptions and digital advertising through our Connected Fitness business. A large majority of our products are sold in North America; however we believe that our products appeal to athletes and consumers with active lifestyles around the globe. Internationally, our net revenues are generated from a mix of wholesale sales to retailers and distributors and sales through our direct to consumer sales channels, and license revenue from sales by our third party licensees. We plan to continue to grow our business over the long term through increased sales of our apparel, footwear and accessories, expansion of our wholesale distribution, growth in our direct to consumer sales channel and expansion in international markets. Virtually all of our products are manufactured by our unaffiliated primary manufacturers operating in 16 countries outside of the United States.
We were incorporated as a Maryland corporation in 1996. As used in this report, the terms “we,” “our,” “us,” “Under Armour” and the “Company” refer to Under Armour, Inc. and its subsidiaries unless the context indicates otherwise. We have registered trademarks around the globe, including UNDER ARMOUR®, HEATGEAR®, COLDGEAR®, ALLSEASONGEAR® and the Under Armour UA Logo, and we have applied to register many other trademarks. This Annual Report on Form 10-K also contains additional trademarks and tradenames of our Company and our subsidiaries. All trademarks and tradenames appearing in this Annual Report on Form 10-K are the property of their respective holders.
Products
Our product offerings consist of apparel, footwear and accessories for men, women and youth. We market our products at multiple price levels and provide consumers with products that we believe are a superior alternative to traditional athletic products. In 2015, sales of apparel, footwear and accessories represented 71%, 17% and 9% of net revenues, respectively. Licensing arrangements, primarily for the sale of our products, and revenue from our Connected Fitness business represented the remaining 3% of net revenues. Refer to Note 16 to the Consolidated Financial Statements for net revenues by product.
Apparel
Our apparel is offered in a variety of styles and fits intended to enhance comfort and mobility, regulate body temperature and improve performance regardless of weather conditions. Our apparel is engineered to replace traditional non-performance fabrics in the world of athletics and fitness with performance alternatives designed and merchandised along gearlines. Our three gearlines are marketed to tell a very simple story about our highly technical products and extend across the sporting goods, outdoor and active lifestyle markets. We market our apparel for consumers to choose HEATGEAR® when it is hot, COLDGEAR® when it is cold and ALLSEASONGEAR® between the extremes. Within each gearline our apparel comes in three primary fit types: compression (tight fit), fitted (athletic fit) and loose (relaxed).
HEATGEAR® is designed to be worn in warm to hot temperatures under equipment or as a single layer. While a sweat-soaked traditional non-performance T-shirt can weigh two to three pounds, HEATGEAR® is engineered with a microfiber blend designed to wick moisture from the body which helps the body stay cool, dry and light. We offer HEATGEAR® in a variety of tops and bottoms in a broad array of colors and styles for wear in the gym or outside in warm weather.
COLDGEAR® is designed to wick moisture from the body while circulating body heat from hot spots to help maintain core body temperature. Our COLDGEAR® apparel provides both dryness and warmth in a single light layer that can be worn
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beneath a jersey, uniform, protective gear or ski-vest, and our COLDGEAR® outerwear products protect the athlete, as well as the coach and the fan from the outside in. Our COLDGEAR® products generally sell at higher prices than our other gearlines.
ALLSEASONGEAR® is designed to be worn in between extreme temperatures and uses technical fabrics to keep the wearer cool and dry in warmer temperatures while preventing a chill in cooler temperatures.
Footwear
Our footwear offerings include football, baseball, lacrosse, softball and soccer cleats, slides and performance training, running, basketball and outdoor footwear. Our footwear is light, breathable and built with performance attributes for athletes. Our footwear is designed with innovative technologies which provide stabilization, directional cushioning and moisture management engineered to maximize the athlete’s comfort and control.
Accessories
Accessories primarily includes the sale of headwear, bags and gloves. Our accessories include HEATGEAR® and COLDGEAR® technologies and are designed with advanced fabrications to provide the same level of performance as our other products.
Connected Fitness
We offer digital fitness platform licenses and subscriptions, along with digital advertising through our MapMyFitness, MyFitnessPal, Endomondo and UA Record applications.
License
We have agreements with our licensees to develop Under Armour apparel, accessories and equipment. Our product, marketing and sales teams are actively involved in all steps of the design and go to market process in order to maintain brand standards and consistency. During 2015, our licensees offered collegiate and Major League Baseball ("MLB") apparel and accessories, baby and kids’ apparel, team uniforms, socks, water bottles, eyewear, inflatable footballs and basketballs and other specific hard goods equipment that feature performance advantages and functionality similar to our other product offerings.
Marketing and Promotion
We currently focus on marketing and selling our products to consumers primarily for use in athletics, fitness, training and outdoor activities. We seek to drive consumer demand by building brand equity and awareness that our products deliver advantages that help athletes perform better.
Sports Marketing
Our marketing and promotion strategy begins with providing and selling our products to high-performing athletes and teams on the high school, collegiate and professional levels. We execute this strategy through outfitting agreements, professional and collegiate sponsorships, individual athlete agreements and by providing and selling our products directly to team equipment managers and to individual athletes. As a result, our products are seen on the field, giving them exposure to various consumer audiences through the internet, television, magazines and live at sporting events. This exposure to consumers helps us establish on-field authenticity as consumers can see our products being worn by high-performing athletes.
We are the official outfitter of athletic teams in several high-profile collegiate conferences. We are an official supplier of footwear and gloves to the National Football League (“NFL”). We are the Official Performance Footwear Supplier of Major League Baseball and a partner with the National Basketball Association (“NBA”) which allows us to market our NBA athletes in game uniforms in connection with our basketball footwear. We are the official combine scouting partner to the NFL and NBA with the right to sell combine training apparel. Internationally, we sponsor and sell our products to several European and Latin American soccer and rugby teams, which helps drive brand awareness in various countries and regions around the world.
We also seek to sponsor events to drive awareness and brand authenticity from a grassroots level. We host combines, camps and clinics for athletes in many sports at regional sites across the country. These events, along with the products we make, are designed to help young athletes improve their training methods and their overall performance. We are also the title sponsor of a collection of high school All-America Games that create significant on-field product and brand exposure that contributes to our on-field authenticity.
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Media
We feature our products in a variety of national digital, broadcast, and print media outlets. We also utilize social and mobile media to engage consumers and promote conversation around our brand and our products.
Retail Presentation
The primary component of our retail marketing strategy is to increase and brand floor space dedicated to our products within our major retail accounts. The design and funding of Under Armour concept shops within our major retail accounts has been a key initiative for securing prime floor space, educating the consumer and creating an exciting environment for the consumer to experience our brand. Under Armour concept shops enhance our brand’s presentation within our major retail accounts with a shop-in-shop approach, using dedicated floor space exclusively for our products, including flooring, lighting, walls, displays and images.
Sales and Distribution
The majority of our sales are generated through wholesale channels, which include national and regional sporting goods chains, independent and specialty retailers, department store chains, institutional athletic departments and leagues and teams. In addition, we sell our products to independent distributors in various countries where we generally do not have direct sales operations and through licensees.
We also sell our products directly to consumers through our own network of brand and factory house stores in our North America, Europe, the Middle East and Africa (“EMEA”), Latin America and Asia-Pacific operating segments, and through websites globally. These factory house stores serve an important role in our overall inventory management by allowing us to sell a significant portion of excess, discontinued and out-of-season products while maintaining the pricing integrity of our brand in our other distribution channels. Through our brand house stores, consumers experience our brand first-hand and have broader access to our performance products. In 2015, sales through our wholesale, direct to consumer, licensing and Connected Fitness channels represented 67%, 30%, 2% and 1% of net revenues, respectively.
We believe the trend toward performance products is global and plan to continue to introduce our products and simple merchandising story to athletes throughout the world. We are introducing our performance apparel, footwear and accessories outside of North America in a manner consistent with our past brand-building strategy, including selling our products directly to teams and individual athletes in these markets, thereby providing us with product exposure to broad audiences of potential consumers.
Our primary business operates in four geographic segments: (1) North America, comprising the United States and Canada, (2) EMEA, (3) Asia-Pacific, and (4) Latin America. Each of these geographic segments operate predominantly in one industry: the design, development, marketing and distribution of performance apparel, footwear and accessories. We also operate our Connected Fitness business as a separate segment. As our international operating segments are currently not material, we combine them and refer to the collectively as International for reporting purposes. The following table presents net revenues by segment for each of the years ending December 31, 2015, 2014 and 2013:
Year ended December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | ||||||||||||||||||
(In thousands) | Net Revenues | % of Net Revenues | Net Revenues | % of Net Revenues | Net Revenues | % of Net Revenues | ||||||||||||||
North America | $ | 3,455,737 | 87.2 | % | $ | 2,796,374 | 90.7 | % | $ | 2,193,739 | 94.1 | % | ||||||||
International | 454,161 | 11.5 | 268,771 | 8.7 | 137,244 | 5.9 | ||||||||||||||
Connected Fitness | 53,415 | 1.3 | 19,225 | 0.6 | 1,068 | — | ||||||||||||||
Total net revenues | $ | 3,963,313 | 100.0 | % | $ | 3,084,370 | 100.0 | % | $ | 2,332,051 | 100.0 | % | ||||||||
North America accounted for approximately 87% of our net revenues for 2015. We sell our branded apparel, footwear and accessories in North America through our wholesale and direct to consumer channels. Net revenues generated from the sales of our products in the United States were $3,267.0 million, $2,651.1 million and $2,082.5 million for the years ended December 31, 2015, 2014 and 2013, respectively, and the majority of our long-lived assets were located in the United States. Our largest customer, Dick’s Sporting Goods, accounted for 11.5% of our net revenues in 2015. No other customers accounted for more than 10% of our net revenues.
Our direct to consumer sales are generated through our brand and factory house stores, along with internet websites. As of December 31, 2015, we had 143 factory house stores in North America primarily located in outlet centers throughout the
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United States. As of December 31, 2015, we had 10 brand house stores in North America. Consumers can purchase our products directly from our e-commerce website, www.underarmour.com.
In addition, we earn licensing revenue in North America based on our licensees’ collegiate and MLB apparel and accessories, baby and kids’ apparel, team uniforms, socks, water bottles, eyewear and inflatable footballs and basketballs and other specific hard goods equipment. In order to maintain consistent quality and performance, we pre-approve all products manufactured and sold by our licensees, and our quality assurance team strives to ensure that the products meet the same quality and compliance standards as the products that we sell directly.
We distribute the majority of our products sold to our North American wholesale customers and our brand and factory house stores from distribution facilities we lease and operate in California, Maryland and Tennessee. In addition, we distribute our products in North America through third-party logistics providers with primary locations in Canada, New Jersey and Florida. In some instances, we arrange to have products shipped from the factories that manufacture our products directly to customer-designated facilities.
International
Approximately 11% of our net revenues were generated outside of North America in 2015. We plan to continue to grow our business over the long term in part through expansion in international markets.
EMEA
We sell our apparel, footwear and accessories primarily through wholesale distributors, website operations, independent distributors and a limited number of stores we operate in certain European countries. We also sell our branded products to various sports clubs and teams in Europe. We generally distribute our products to our retail customers and e-commerce consumers in Europe through a third-party logistics provider based out of Venlo, The Netherlands. This agreement continues through April 2017.
Asia-Pacific
We sell our apparel, footwear and accessories products in China through stores operated by our distribution partners along with a limited number of stores we operate. We also sell our products to distributors in Australia, New Zealand, Taiwan and Hong Kong where we do not have direct sales operations. We distribute our products in Asia-Pacific primarily through a third-party logistics provider based out of Hong Kong.
We have a license agreement with Dome Corporation, which produces, markets and sells our branded apparel, footwear and accessories in Japan and Korea. We are actively involved with this licensee to develop variations of our products for the different sizes, sports interests and preferences of Japanese and Korean consumers. Our branded products are sold in Japan and Korea to large sporting goods retailers, independent specialty stores and professional sports teams, and through Dome-owned retail stores. We hold a cost-based minority investment in Dome Corporation.
Latin America
We sell our products in Chile, Mexico and Brazil through wholesale distributors, website operations and brand and factory house stores. In these countries we operate through third-party distribution facilities. In other Latin American countries we sell our products through independent distributors which are sourced through our international distribution hubs in Hong Kong, Jordan and the United States. Prior to 2014, we primarily sold our products in Latin America through an independent distributor in Mexico.
Connected Fitness
In 2013, we began offering digital fitness subscriptions and licenses, along with digital advertising through our MapMyFitness platform. In 2014, we introduced the UA Record platform and in 2015, we acquired the Endomondo and MyFitnessPal platforms to create our Connected Fitness business. Approximately 1% of our net revenues were generated from our Connected Fitness business in 2015. We plan to engage and grow this community by developing innovative applications, services and other digital solutions to impact how athletes and fitness-minded individuals train, perform and live.
Seasonality
Historically, we have recognized a majority of our net revenues and a significant portion of our income from operations in the last two quarters of the year, driven primarily by increased sales volume of our products during the fall selling season, including our higher priced cold weather products, along with a larger proportion of higher margin direct to consumer sales.
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The level of our working capital generally reflects the seasonality and growth in our business. We generally expect inventory, accounts payable and certain accrued expenses to be higher in the second and third quarters in preparation for the fall selling season.
Product Design and Development
Our products are manufactured with technical fabrications produced by third parties and developed in collaboration with our product development teams. This approach enables us to select and create superior, technically advanced fabrics, produced to our specifications, while focusing our product development efforts on design, fit, climate and product end use.
We seek to regularly upgrade and improve our products with the latest in innovative technology while broadening our product offerings. Our goal, to deliver superior performance in all our products, provides our developers and licensees with a clear, overarching direction for the brand and helps them identify new opportunities to create performance products that meet the changing needs of athletes. We design products with “visible technology,” utilizing color, texture and fabrication to enhance our customers’ perception and understanding of product use and benefits.
Our product development team works closely with our sports marketing and sales teams as well as professional and collegiate athletes to identify product trends and determine market needs. For example, these teams worked closely to identify the opportunity and market for our CHARGED COTTON® products, which are made from natural cotton but perform like our synthetic products, drying faster and wicking away moisture from the body, and our Storm Fleece products with a unique, water-resistant finish that repels water, without stifling airflow. In 2013, we introduced ColdGear® Infrared, a ceramic print technology on the inside of our garments that provides athletes with lightweight warmth, and Speedform®, a proprietary 3-dimensional molding technology for footwear which delivers superior fit and feel.
Sourcing, Manufacturing and Quality Assurance
Many of the specialty fabrics and other raw materials used in our products are technically advanced products developed by third parties and may be available, in the short term, from a limited number of sources. The fabric and other raw materials used to manufacture our products are sourced by our manufacturers from a limited number of suppliers pre-approved by us. In 2015, approximately 54% of the fabric used in our products came from five suppliers. These fabric suppliers have primary locations in Taiwan, Malaysia and Mexico. The fabrics used by our suppliers and manufacturers are primarily synthetic fabrics and involve raw materials, including petroleum based products that may be subject to price fluctuations and shortages. We also use cotton in our products, as blended fabric and also in our CHARGED COTTON® line. Cotton is a commodity that is subject to price fluctuations and supply shortages. Additionally, our footwear uses raw materials that are sourced from a diverse base of third party suppliers. This includes chemicals and petroleum-based components such as rubber that are also subject to price fluctuations and supply shortages.
Substantially all of our products are manufactured by unaffiliated manufacturers. In 2015, our products were manufactured by 44 primary manufacturers, operating in 16 countries, with approximately 63% of our products manufactured in China, Jordan, Vietnam and Indonesia. Of our 44 primary manufacturing partners, 10 produced approximately 45% of our products. All manufacturers are evaluated for quality systems, social compliance and financial strength by our quality assurance team prior to being selected and on an ongoing basis. Where appropriate, we strive to qualify multiple manufacturers for particular product types and fabrications. We also seek out vendors that can perform multiple manufacturing stages, such as procuring raw materials and providing finished products, which helps us to control our cost of goods sold. We enter into a variety of agreements with our manufacturers, including non-disclosure and confidentiality agreements, and we require that all of our manufacturers adhere to a code of conduct regarding quality of manufacturing and working conditions and other social concerns. We do not, however, have any long term agreements requiring us to utilize any manufacturer, and no manufacturer is required to produce our products in the long term. We have subsidiaries in Hong Kong, Panama, Vietnam, Indonesia and China to support our manufacturing, quality assurance and sourcing efforts for our products. We also manufacture a limited number of apparel products, primarily for high-profile athletes and teams, on-premises in our quick turn, Special Make-Up Shop located at one of our distribution facilities in Maryland.
Inventory Management
Inventory management is important to the financial condition and operating results of our business. We manage our inventory levels based on existing orders, anticipated sales and the rapid-delivery requirements of our customers. Our inventory strategy is focused on continuing to meet consumer demand while improving our inventory efficiency over the long term by putting systems and processes in place to improve our inventory management. These systems and processes are designed to improve our forecasting and supply planning capabilities. In addition to systems and processes, key areas of focus that we believe will enhance inventory performance are added discipline around the purchasing of product, production lead time
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reduction, and better planning and execution in selling of excess inventory through our factory house stores and other liquidation channels.
Our practice, and the general practice in the apparel, footwear and accessory industries, is to offer retail customers the right to return defective or improperly shipped merchandise. As it relates to new product introductions, which can often require large initial launch shipments, we commence production before receiving orders for those products from time to time. This can affect our inventory levels as we build pre-launch quantities.
Intellectual Property
We believe we own the material trademarks used in connection with the marketing, distribution and sale of our products, both domestically and internationally, where our products are currently sold or manufactured. Our major trademarks include the UA Logo and UNDER ARMOUR®, both of which are registered in the United States, Canada, Mexico, the European Union, Japan, China and numerous other countries. We also own trademark registrations for other trademarks including, among others, UA®, ARMOUR®, HEATGEAR®, COLDGEAR®, ALLSEASONGEAR®, PROTECT THIS HOUSE®, I WILL®, and many trademarks that incorporate the term ARMOUR such as ARMOURBITE®, ARMOURSTORM®, ARMOUR® FLEECE, and ARMOUR BRA®. We also own applications to protect new connected fitness branding such as UA RECORD™, UA HEALTHBOX™ and UNDER ARMOUR CONNECTED FITNESS™. We own domain names for our primary trademarks (most notably underarmour.com and ua.com) and hold copyright registrations for several commercials, as well as for certain artwork. We intend to continue to strategically register, both domestically and internationally, trademarks and copyrights we utilize today and those we develop in the future. We will continue to aggressively police our trademarks and pursue those who infringe, both domestically and internationally.
We believe the distinctive trademarks we use in connection with our products are important in building our brand image and distinguishing our products from those of others. These trademarks are among our most valuable assets. In addition to our distinctive trademarks, we also place significant value on our trade dress, which is the overall image and appearance of our products, and we believe our trade dress helps to distinguish our products in the marketplace.
We traditionally have had limited patent protection on much of the technology, materials and processes used in the manufacture of our products. In addition, patents are increasingly important with respect to our innovative products and new businesses and investments, particularly in our Connected Fitness business. As we continue to expand and drive innovation in our products, we expect to seek patent protection on products, features and concepts we believe to be strategic and important to our business. We will continue to file patent applications where we deem appropriate to protect our new products, innovations and designs. We expect the number of applications to increase as our business grows and as we continue to expand our products and innovate.
Competition
The market for performance apparel, footwear and accessories is highly competitive and includes many new competitors as well as increased competition from established companies expanding their production and marketing of performance products. Many of the fabrics and technology used in manufacturing our products are not unique to us, and we own a limited number of fabric or process patents. Many of our competitors are large apparel and footwear companies with strong worldwide brand recognition and significantly greater resources than us, such as Nike and Adidas. We also compete with other manufacturers, including those specializing in outdoor apparel, and private label offerings of certain retailers, including some of our retail customers.
In addition, we must compete with others for purchasing decisions, as well as limited floor space at retailers. We believe we have been successful in this area because of the relationships we have developed and as a result of the strong sales of our products. However, if retailers earn higher margins from our competitors’ products, they may favor the display and sale of those products.
We believe we have been able to compete successfully because of our brand image and recognition, the performance and quality of our products and our selective distribution policies. We also believe our focused gearline merchandising story differentiates us from our competition. In the future we expect to compete for consumer preferences and expect that we may face greater competition on pricing. This may favor larger competitors with lower production costs per unit that can spread the effect of price discounts across a larger array of products and across a larger customer base than ours. The purchasing decisions of consumers for our products often reflect highly subjective preferences that can be influenced by many factors, including advertising, media, product sponsorships, product improvements and changing styles.
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Employees
As of December 31, 2015, we had approximately 13,400 employees, including approximately 8,300 in our brand and factory house stores and approximately 2,000 at our distribution facilities. Approximately 5,800 of our employees were full-time. Most of our employees are located in the United States. None of our employees in the United States are currently covered by a collective bargaining agreement and there are no material collective bargaining agreements in effect in any of our international locations. We have had no labor-related work stoppages, and we believe our relations with our employees are good.
Available Information
We will make available free of charge on or through our website at www.underarmour.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we file these materials with the Securities and Exchange Commission. We also post on this website our key corporate governance documents, including our board committee charters, our corporate governance guidelines and our code of conduct and ethics.
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ITEM 1A. | RISK FACTORS |
Forward-Looking Statements
Some of the statements contained in this Form 10-K and the documents incorporated herein by reference constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, the implementation of our marketing and branding strategies, future benefits and opportunities from acquisitions and other significant investments and our planned dividend of shares of our Class C common stock. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “outlook,” “potential” or the negative of these terms or other comparable terminology.
The forward-looking statements contained in this Form 10-K and the documents incorporated herein by reference reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by these forward-looking statements, including, but not limited to, those factors described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These factors include without limitation:
• | changes in general economic or market conditions that could affect consumer spending; |
• | changes to the financial health of our customers; |
• | our ability to effectively manage our growth and a more complex global business; |
• | our ability to successfully manage or realize expected results from acquisitions and other significant investments or capital expenditures; |
• | our ability to effectively develop and launch new, innovative and updated products; |
• | our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; |
• | increased competition causing us to lose market share or reduce the prices of our products or to increase significantly our marketing efforts; |
• | fluctuations in the costs of our products; |
• | loss of key suppliers or manufacturers or failure of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner, including due to port disruptions; |
• | our ability to further expand our business globally and to drive brand awareness and consumer acceptance of our products in other countries; |
• | our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results; |
• | risks related to foreign currency exchange rate fluctuations; |
• | our ability to effectively market and maintain a positive brand image; |
• | our ability to comply with trade and other regulations; |
• | the availability, integration and effective operation of information systems and other technology, as well as any potential interruption of such systems or technology; |
• | risks related to data security or privacy breaches; |
• | our ability to raise additional capital required to grow our business on terms acceptable to us; |
• | our potential exposure to litigation and other proceedings; and |
• | our ability to attract and retain the services of our senior management and key employees. |
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The forward-looking statements contained in this Form 10-K reflect our views and assumptions only as of the date of this Form 10-K. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
Our results of operations and financial condition could be adversely affected by numerous risks. You should carefully consider the risk factors detailed below in conjunction with the other information contained in this Form 10-K. Should any of these risks actually materialize, our business, financial condition and future prospects could be negatively impacted.
During a downturn in the economy, consumer purchases of discretionary items are affected, which could materially harm our sales, profitability and financial condition.
Many of our products may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, the availability of consumer credit and consumer confidence in future economic conditions. Uncertainty in global economic conditions continues, and trends in consumer discretionary spending remain unpredictable. However, consumer purchases of discretionary items tend to decline during recessionary periods when disposable income is lower or during other periods of economic instability or uncertainty. A downturn in the economy in markets in which we sell our products may materially harm our sales, profitability and financial condition.
If the financial condition of our customers declines, our financial condition and results of operations could be adversely impacted.
We extend credit to our customers based on an assessment of a customer’s financial condition, generally without requiring collateral. We face increased risk of order reduction or cancellation when dealing with financially ailing customers or customers struggling with economic uncertainty. During weak economic conditions, customers may be more cautious with orders or may slow investments necessary to maintain a high quality in-store experience for consumers, which may result in lower sales of our products. In addition, a slowing economy in our key markets or a continued decline in consumer purchases of sporting goods generally could have an adverse effect on the financial health of our customers. From time to time certain of our customers have experienced financial difficulties. To the extent one or more of our customers experience significant financial difficulty, insolvency or cease operations, this could have an adverse effect on our sales, our ability to collect on receivables and our financial condition.
A decline in sales to, or the loss of, one or more of our key customers could result in a material loss of net revenues and negatively impact our prospects for growth.
In 2015, approximately 11.5% of our net revenues were generated from sales to our largest customer. We currently do not enter into long term sales contracts with this customer or our other key customers, relying instead on our relationships with these customers and on our position in the marketplace. As a result, we face the risk that these key customers may not increase their business with us as we expect, or may significantly decrease their business with us or terminate their relationship with us. The failure to increase our sales to these customers as much as we anticipate would have a negative impact on our growth prospects and any decrease or loss of these key customers' business could result in a material decrease in our net revenues and net income.
We must continue to effectively manage our growth and the increased complexity of a global business or we may not achieve our long-term growth targets and our brand image, net revenues and profitability may decline.
We have expanded our business and operations rapidly since our inception and our net revenues have increased to $3,963.3 million in 2015 from $1,472.7 million in 2011. Our long-term growth strategy depends on our ability to not only maintain strong growth throughout our business, but to also successfully execute on strategic growth initiatives in key areas, such as our international business, footwear and our global direct to consumer sales channel. Our growth in these areas depends on our ability to continue to successfully expand our global network of brand and factory house stores, grow our e-commerce and mobile application offerings throughout the world and continue to successfully increase our product offerings and market share in footwear. If we cannot effectively execute our long-term growth strategies, our business and results of operations could be negatively impacted.
In addition to successfully executing on our long-term growth strategies, we must also continue to successfully manage the operational difficulties associated with expanding our business to meet increased consumer demand throughout the world. We may experience difficulties in obtaining sufficient raw materials and manufacturing capacity to produce our products, as well as delays in production and shipments, as our products are subject to risks associated with overseas sourcing and manufacturing. We must also continually evaluate the need to expand critical functions in our business, including sales and marketing, product development and distribution functions, our management information systems and other processes and
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technology. To support these functions, we must hire, train and manage an increasing number of employees, and obtain more space to support our expanding workforce. We may not be successful in undertaking these types of initiatives cost effectively or at all, and could experience serious operating difficulties if we fail to do so. These growth efforts could also increase the strain on our existing resources. If we experience difficulties in supporting the growth of our business, we could experience an erosion of our brand image and a decrease in net revenues and net income.
If we fail to successfully manage or realize expected results from acquisitions and other significant investments, it may have a material adverse effect on our results of operations and financial position, as well as negatively impact the price of our publicly traded common stock.
From time to time we may engage in acquisition opportunities we believe are complementary to our business and brand. For example, as part of our ongoing business strategy we have engaged in acquisitions to grow and enhance our Connected Fitness business. In order to successfully execute this strategy, we must manage the integration of acquired companies and employees successfully. Because our Connected Fitness business is a relatively new line of business for us, these challenges may be more pronounced. Integrating acquisitions can also require significant efforts and resources, which could divert management attention from more profitable business operations.
Failing to successfully integrate acquired entities and businesses or to produce results consistent with financial models used in the analysis of our acquisitions could potentially result in an impairment of goodwill and intangible assets, which could have a material adverse effect on our results of operations and financial position. In addition, we may not be successful in our efforts to continue to grow the number of users, maintain or increase user engagement or ultimately realize expected revenues from our Connected Fitness community. For example, we may not successfully increase sales of our apparel, footwear and accessory products to these users. Any of these developments could have a material adverse effect on our results of operations and financial position, as well as negatively impact the price of our publicly traded common stock.
If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products, our net revenues and profitability may be negatively impacted.
Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. In addition, long lead times for certain of our products may make it hard for us to quickly respond to changes in consumer demands. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of performance or other sports products or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes.
Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products. If we fail to introduce technical innovation in our products, consumer demand for our products could decline. In addition, if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems. Our failure to anticipate and respond timely to changing consumer preferences or to effectively introduce new products and enter into new product categories that are accepted by consumers could result in a decrease in net revenues and excess inventory levels, which could have a material adverse effect on our financial condition.
Our results of operations could be materially harmed if we are unable to accurately forecast demand for our products.
To ensure adequate inventory supply, we must forecast inventory needs and place orders with our manufacturers before firm orders are placed by our customers. In addition, a significant portion of our net revenues are generated by at-once orders for immediate delivery to customers, particularly during our historical peak season, during the last two quarters of the year. If we fail to accurately forecast customer demand we may experience excess inventory levels or a shortage of product to deliver to our customers.
Factors that could affect our ability to accurately forecast demand for our products include:
• | an increase or decrease in consumer demand for our products; |
• | our failure to accurately forecast consumer acceptance for our new products; |
• | product introductions by competitors; |
• | unanticipated changes in general market conditions or other factors, which may result in cancellations of advance orders or a reduction or increase in the rate of reorders placed by retailers; |
• | the impact on consumer demand due to unseasonable weather conditions; |
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• | weakening of economic conditions or consumer confidence in future economic conditions, which could reduce demand for discretionary items, such as our products; and |
• | terrorism or acts of war, or the threat thereof, or political or labor instability or unrest which could adversely affect consumer confidence and spending or interrupt production and distribution of product and raw materials. |
Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which could impair our brand image and have an adverse effect on gross margin. In addition, if we underestimate the demand for our products, our manufacturers may not be able to produce products to meet our customer requirements, and this could result in delays in the shipment of our products and our ability to recognize revenue, as well as damage to our reputation and retailer and distributor relationships.
The difficulty in forecasting demand also makes it difficult to estimate our future results of operations and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely impact our profitability.
Sales of performance products may not continue to grow and this could adversely impact our ability to grow our business.
We believe continued growth in industry-wide sales of performance apparel, footwear and accessories will be largely dependent on consumers continuing to transition from traditional alternatives to performance products. If consumers are not convinced these products are a better choice than traditional alternatives, growth in the industry and our business could be adversely affected. In addition, because performance products are often more expensive than traditional alternatives, consumers who are convinced these products provide a better alternative may still not be convinced they are worth the extra cost. If industry-wide sales of performance products do not grow, our ability to continue to grow our business and our financial condition and results of operations could be materially adversely impacted.
We operate in highly competitive markets and the size and resources of some of our competitors may allow them to compete more effectively than we can, resulting in a loss of our market share and a decrease in our net revenues and gross profit.
The market for performance apparel, footwear and accessories is highly competitive and includes many new competitors as well as increased competition from established companies expanding their production and marketing of performance products. Because we own a limited number of fabric or process patents, our current and future competitors are able to manufacture and sell products with performance characteristics and fabrications similar to certain of our products. Many of our competitors are large apparel and footwear companies with strong worldwide brand recognition. Due to the fragmented nature of the industry, we also compete with other manufacturers, including those specializing in outdoor apparel and private label offerings of certain retailers, including some of our retail customers. Many of our competitors have significant competitive advantages, including greater financial, distribution, marketing and other resources, longer operating histories, better brand recognition among consumers, more experience in global markets and greater economies of scale. In addition, our competitors have long term relationships with our key retail customers that are potentially more important to those customers because of the significantly larger volume and product mix that our competitors sell to them. As a result, these competitors may be better equipped than we are to influence consumer preferences or otherwise increase their market share by:
• | quickly adapting to changes in customer requirements; |
• | readily taking advantage of acquisition and other opportunities; |
• | discounting excess inventory that has been written down or written off; |
• | devoting resources to the marketing and sale of their products, including significant advertising, media placement, partnerships and product endorsement; |
• | adopting aggressive pricing policies; and |
• | engaging in lengthy and costly intellectual property and other disputes. |
In addition, while one of our growth strategies is to increase floor space for our products in retail stores and generally expand our distribution to other retailers, retailers have limited resources and floor space, and we must compete with others to develop relationships with them. Increased competition by existing and future competitors could result in reductions in floor space in retail locations, reductions in sales or reductions in the prices of our products, and if retailers earn greater margins from our competitors’ products, they may favor the display and sale of those products. Our inability to compete successfully
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against our competitors and maintain our gross margin could have a material adverse effect on our business, financial condition and results of operations.
Our profitability may decline as a result of increasing pressure on pricing.
Our industry is subject to significant pricing pressure caused by many factors, including intense competition, consolidation in the retail industry, pressure from retailers to reduce the costs of products and changes in consumer demand. These factors may cause us to reduce our prices to retailers and consumers, which could negatively impact our margins and cause our profitability to decline if we are unable to offset price reductions with comparable reductions in our operating costs. This could have a material adverse effect on our results of operations and financial condition.
Fluctuations in the cost of products could negatively affect our operating results.
The fabrics used by our suppliers and manufacturers are made of raw materials including petroleum-based products and cotton. Significant price fluctuations or shortages in petroleum or other raw materials can materially adversely affect our cost of goods sold. In addition, certain of our manufacturers are subject to government regulations related to wage rates, and therefore the labor costs to produce our products may fluctuate. The cost of transporting our products for distribution and sale is also subject to fluctuation due in large part to the price of oil. Because most of our products are manufactured abroad, our products must be transported by third parties over large geographical distances and an increase in the price of oil can significantly increase costs. Manufacturing delays or unexpected transportation delays can also cause us to rely more heavily on airfreight to achieve timely delivery to our customers, which significantly increases freight costs. Any of these fluctuations may increase our cost of products and have an adverse effect on our profit margins, results of operations and financial condition.
We rely on third-party suppliers and manufacturers to provide fabrics for and to produce our products, and we have limited control over these suppliers and manufacturers and may not be able to obtain quality products on a timely basis or in sufficient quantity.
Many of the specialty fabrics used in our products are technically advanced textile products developed by third parties and may be available, in the short-term, from a very limited number of sources. Substantially all of our products are manufactured by unaffiliated manufacturers, and, in 2015, 10 manufacturers produced approximately 45% of our products. We have no long term contracts with our suppliers or manufacturing sources, and we compete with other companies for fabrics, raw materials, production and import quota capacity.
We may experience a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, our unaffiliated manufacturers may not be able to fill our orders in a timely manner. If we experience significant increased demand, or we lose or need to replace an existing manufacturer or supplier as a result of adverse economic conditions or other reasons, additional supplies of fabrics or raw materials or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, or suppliers or manufacturers may not be able to allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers on our methods, products and quality control standards. Any delays, interruption or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower net revenues and net income both in the short and long term.
We have occasionally received, and may in the future continue to receive, shipments of product that fail to conform to our quality control standards. In that event, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenues resulting from the inability to sell those products and related increased administrative and shipping costs. In addition, because we do not control our manufacturers, products that fail to meet our standards or other unauthorized products could end up in the marketplace without our knowledge, which could harm our brand and our reputation in the marketplace.
Labor disruptions at ports or our suppliers or manufacturers may adversely affect our business.
Our business depends on our ability to source and distribute products in a timely manner. As a result, we rely on the free flow of goods through open and operational ports worldwide and on a consistent basis from our suppliers and manufacturers. Labor disputes at various ports or at our suppliers or manufacturers create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes or other disruptions during our peak importing or manufacturing seasons, and could have an adverse effect on our business, potentially resulting in canceled orders by customers, unanticipated inventory accumulation or shortages and reduced net revenues and net income.
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Our limited operating experience and limited brand recognition in new markets may limit our expansion strategy and cause our business and growth to suffer.
Our future growth depends in part on our expansion efforts outside of North America. During the year ended December 31, 2015, 87% of our net revenues were earned in our North America segment. We have limited experience with regulatory environments and market practices outside of North America, and may face difficulties in expanding to and successfully operating in markets outside of North America. International expansion may place increased demands on our operational, managerial and administrative resources. In addition, in connection with expansion efforts outside of North America, we may face cultural and linguistic differences, differences in regulatory environments, labor practices and market practices and difficulties in keeping abreast of market, business and technical developments and customers’ tastes and preferences. We may also encounter difficulty expanding into new markets because of limited brand recognition leading to delayed acceptance of our products. Failure to develop new markets outside of North America will limit our opportunities for growth.
The operations of many of our manufacturers are subject to additional risks that are beyond our control and that could harm our business.
In 2015, our products were manufactured by 44 primary manufacturers, operating in 16 countries, with 10 manufacturers accounting for approximately 45% of our products. Approximately 63% of our products were manufactured in China, Jordan, Vietnam and Indonesia. As a result of our international manufacturing, we are subject to risks associated with doing business abroad, including:
• | political or labor unrest, terrorism and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured; |
• | currency exchange fluctuations; |
• | the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, trade restrictions and restrictions on the transfer of funds, as well as rules and regulations regarding climate change; |
• | reduced protection for intellectual property rights in some countries; |
• | disruptions or delays in shipments; and |
• | changes in local economic conditions in countries where our manufacturers and suppliers are located. |
These risks could negatively affect the ability of our manufacturers to produce or deliver our products or procure materials, hamper our ability to sell products in international markets and increase our cost of doing business generally. In the event that one or more of these factors make it undesirable or impractical for us to conduct business in a particular country, our business could be adversely affected.
In addition, many of our imported products are subject to duties, tariffs or other import limitations that affect the cost and quantity of various types of goods imported into the United States and other markets. Any country in which our products are produced or sold may eliminate, adjust or impose new import limitations, duties, anti-dumping penalties or other charges or restrictions, any of which could have an adverse effect on our results of operations, cash flows and financial condition.
Our credit facility contains financial covenants and other restrictions on our actions, and it could therefore limit our operational flexibility or otherwise adversely affect our financial condition.
We have, from time to time, financed our liquidity needs in part from borrowings made under our credit facility. The credit agreement contains negative covenants that, subject to significant exceptions limit our ability, among other things to incur additional indebtedness, make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. In addition, we must maintain a certain leverage ratio and interest coverage ratio as defined in the credit agreement. Failure to comply with these operating or financial covenants could result from, among other things, changes in our results of operations or general economic conditions. These covenants may restrict our ability to engage in transactions that would otherwise be in our best interests. Failure to comply with any of the covenants under the credit agreement could result in a default. In addition, the credit agreement includes a cross default provision whereby an event of default under certain other debt obligations will be considered an event of default under the credit agreement. If an event of default occurs, the commitments of the lenders under the credit agreement may be terminated and the maturity of amounts owed may be accelerated.
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We may need to raise additional capital required to grow our business, and we may not be able to raise capital on terms acceptable to us or at all.
Growing and operating our business will require significant cash outlays and capital expenditures and commitments. If cash on hand and cash generated from operations are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through debt or equity financing, to fund our growth. We may not be able to raise needed cash on terms acceptable to us or at all. Financing may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price per share of our common stock. The holders of new securities may also have rights, preferences or privileges which are senior to those of existing holders of common stock. If new sources of financing are required, but are insufficient or unavailable, we will be required to modify our growth and operating plans based on available funding, if any, which would harm our ability to grow our business.
Our operating results are subject to seasonal and quarterly variations in our net revenues and income from operations, which could adversely affect the price of our publicly traded common stock.
We have experienced, and expect to continue to experience, seasonal and quarterly variations in our net revenues and income from operations. These variations are primarily related to increased sales volume of our products during the fall selling season, including our higher price cold weather products, along with a larger proportion of higher margin direct to consumer sales. The majority of our net revenues were generated during the last two quarters in each of 2015, 2014 and 2013, respectively.
Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including, among other things, the timing of marketing expenses and changes in our product mix. Variations in weather conditions may also have an adverse effect on our quarterly results of operations. For example, warmer than normal weather conditions throughout the fall or winter may reduce sales of our COLDGEAR® line, leaving us with excess inventory and operating results below our expectations.
As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our operating results between different quarters within a single year are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of our future performance. Any seasonal or quarterly fluctuations that we report in the future may not match the expectations of market analysts and investors. This could cause the price of our publicly traded stock to fluctuate significantly.
Our financial results could be adversely impacted by currency exchange rate fluctuations.
Although we currently generate 82% of our consolidated net revenues in the United States, as our international business grows, our results of operations could be adversely impacted by changes in foreign currency exchange rates. Revenues and certain expenses in markets outside of the United States are recognized in local foreign currencies, and we are exposed to potential gains or losses from the translation of those amounts into U.S. dollars for consolidation into our financial statements. Similarly, we are exposed to gains and losses resulting from currency exchange rate fluctuations on transactions generated by our foreign subsidiaries in currencies other than their local currencies. In addition, the business of our independent manufacturers may also be disrupted by currency exchange rate fluctuations by making their purchases of raw materials more expensive and more difficult to finance. As a result, foreign currency exchange rate fluctuations may adversely impact our results of operations.
The value of our brand and sales of our products could be diminished if we are associated with negative publicity.
We require our suppliers, manufacturers and licensees of our products to operate their businesses in compliance with the laws and regulations that apply to them as well as the social and other standards and policies we impose on them, including our code of conduct. We do not control these suppliers, manufacturers or licensees or their labor practices. A violation or reported (or alleged) violation of our policies, labor laws or other laws by our suppliers, manufacturers or licensees could interrupt or otherwise disrupt our sourcing or damage our brand image. Negative publicity regarding production methods, alleged practices or workplace or related conditions of any of our suppliers, manufacturers or licensees could adversely affect our reputation and sales and force us to locate alternative suppliers, manufacturers or licensees.
In addition, we have sponsorship contracts with a variety of athletes and feature those athletes in our advertising and marketing efforts, and many athletes and teams use our products, including those teams or leagues for which we are an official supplier. Actions taken by athletes, teams or leagues associated with our products could harm the reputations of those athletes, teams or leagues. As a result, our brand image, net revenues and profitability could be adversely affected.
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Sponsorships and designations as an official supplier may become more expensive and this could impact the value of our brand image.
A key element of our marketing strategy has been to create a link in the consumer market between our products and professional and collegiate athletes. We have developed licensing agreements to be the official supplier of performance apparel and footwear to a variety of sports teams and leagues at the collegiate and professional level and sponsorship agreements with athletes. However, as competition in the performance apparel and footwear industry has increased, the costs associated with athlete sponsorships and official supplier licensing agreements have increased, including the costs associated with obtaining and retaining these sponsorships and agreements. If we are unable to maintain our current association with professional and collegiate athletes, teams and leagues, or to do so at a reasonable cost, we could lose the on-field authenticity associated with our products, and we may be required to modify and substantially increase our marketing investments. As a result, our brand image, net revenues, expenses and profitability could be materially adversely affected.
Our failure to comply with trade and other regulations could lead to investigations or actions by government regulators and negative publicity.
The labeling, distribution, importation, marketing and sale of our products are subject to extensive regulation by various federal agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the U.S., as well as by various other federal, state, provincial, local and international regulatory authorities in the locations in which our products are distributed or sold. If we fail to comply with those regulations, we could become subject to significant penalties or claims or be required to recall products, which could harm our brand as well as our results of operations or our ability to conduct our business. In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in significant compliance costs or discontinuation of product sales and may impair the marketing of our products, resulting in significant loss of net revenues.
Our international operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-bribery laws applicable to our operations. Although we have policies and procedures to address compliance with the FCPA and similar laws, there can be no assurance that all of our employees, agents and other partners will not take actions in violations of our policies. Any such violation could subject us to sanctions or other penalties that could negatively affect our reputation, business and operating results.
If we encounter problems with our distribution system, our ability to deliver our products to the market could be adversely affected.
We rely on a limited number of distribution facilities for our product distribution. Our distribution facilities utilize computer controlled and automated equipment, which means the operations are complicated and may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. In addition, because many of our products are distributed from a limited number of locations , our operations could also be interrupted by floods, fires or other natural disasters in these locations, as well as labor or other operational difficulties or interruptions. We maintain business interruption insurance, but it may not adequately protect us from the adverse effects that could be caused by significant disruptions in our distribution facilities, such as the long term loss of customers or an erosion of our brand image. In addition, our distribution capacity is dependent on the timely performance of services by third parties, including the shipping of product to and from our distribution facilities. If we encounter problems with our distribution facilities, our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies could be materially adversely affected.
We rely significantly on information technology and any failure, inadequacy or interruption of that technology could harm our ability to effectively operate our business.
Our business increasingly relies on information technology. Our ability to effectively manage and maintain our inventory and internal reports, and to ship products to customers and invoice them on a timely basis depends significantly on our enterprise resource planning, warehouse management, and other information systems. We also heavily rely on information systems to process financial and accounting information for financial reporting purposes. Any of these information systems could fail or experience a service interruption for a number of reasons, including computer viruses, programming errors, hacking or other unlawful activities, disasters or our failure to properly maintain system redundancy or protect, repair, maintain or upgrade our systems. The failure of our information systems to operate effectively or to integrate with other systems, or a breach in security of these systems could cause delays in product fulfillment and reduced efficiency of our operations, which could negatively impact our financial results. If we experienced any significant disruption to our financial information systems that we are unable to mitigate, our ability to timely report our financial results could be impacted, which could negatively impact our stock price. We also communicate electronically throughout the world with our employees and with third parties,
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such as customers, suppliers, vendors and consumers. A service interruption or shutdown could negatively impact our operating activities. Remediation and repair of any failure, problem or breach of our key information systems could require significant capital investments.
In addition, we interact with many of our consumers through both our e-commerce website and our mobile applications. Consumers increasingly utilize these services to purchase our products and to engage with our Connected Fitness community. If we are unable to continue to provide consumers a user-friendly experience and evolve our platform to satisfy consumer preferences, the growth of our e-commerce business may be negatively impacted. The performance of our Connected Fitness business is dependent on reliable performance of its products, applications and services and the underlying technical infrastructure, which incorporate complex software. If this software contains errors, bugs or other vulnerabilities which impede or halt service, this could result in damage to our reputation and brand, loss of users or loss of revenue.
Data security or privacy breaches could damage our reputation, cause us to incur additional expense, expose us to litigation and adversely affect our business.
We collect sensitive and proprietary business information as well as personally identifiable information in connection with digital marketing, digital commerce, our in-store payment processing systems and our Connected Fitness business. In particular, in our Connected Fitness business we collect and store a variety of information regarding our users, and allow users to share their personal information with each other and with third parties. Hackers and data thieves are increasingly sophisticated and operate large scale and complex automated attacks. Any breach of our data security could result in an unauthorized release or transfer of customer, consumer, user or employee information, or the loss of valuable business data or cause a disruption in our business. These events could give rise to unwanted media attention, damage our reputation, damage our customer, consumer or user relationships and result in lost sales, fines or lawsuits. We may also be required to expend significant capital and other resources to protect against or respond to or alleviate problems caused by a security breach.
We must also comply with increasingly complex regulatory standards throughout the world enacted to protect personal information and other data, particularly with respect to our Connected Fitness business. Compliance with existing and proposed laws and regulations can be costly and could negatively impact our profitability. In addition, an inability to maintain compliance with these regulatory standards could subject us to litigation or other regulatory proceedings.
Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate could be adversely affected in the future by a number of factors, including changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax audits in various jurisdictions around the world, and any repatriation of non-US earnings for which we have not previously provided for U.S. taxes. Many of the countries in which we do business have or are expected to adopt changes to tax laws as result of the Base Erosion and Profit Shifting final proposals from the Organization for Economic Co-operation and Development and specific country anti-avoidance initiates. Such tax law changes increase uncertainty and may adversely affect our tax provision. We regularly assess all of these matters to determine the adequacy of our tax provision, which is subject to significant judgment.
Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.
From time to time, we may invest in business infrastructure, new businesses, and expansion of existing businesses, such as the ongoing expansion of our network of brand and factory house stores and our distribution facilities, the expansion of our corporate headquarters investments to implement our enterprise resource planning systems, or investments in our Connected Fitness business. These investments require substantial cash investments and management attention. We believe cost effective investments are essential to business growth and profitability. The failure of any significant investment to provide the returns or synergies we expect could adversely affect our financial results. Infrastructure investments may also divert funds from other potential business opportunities.
Our future success is substantially dependent on the continued service of our senior management and other key employees.
Our future success is substantially dependent on the continued service of our senior management and other key employees, particularly Kevin A. Plank, our founder, Chairman and Chief Executive Officer. The loss of the services of our senior management or other key employees could make it more difficult to successfully operate our business and achieve our business goals.
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We also may be unable to retain existing management, product creation, innovation, sales, marketing, operational and other support personnel that are critical to our success, which could result in harm to key customer relationships, loss of key information, expertise or know-how and unanticipated recruitment and training costs.
If we are unable to attract and retain new team members, including senior management, we may not be able to achieve our business objectives.
Our growth has largely been the result of significant contributions by our current senior management, product design teams and other key employees. However, to be successful in continuing to grow our business, we will need to continue to attract, retain and motivate highly talented management and other employees with a range of skills and experience. Competition for employees in our industry is intense and we have experienced difficulty from time to time in attracting the personnel necessary to support the growth of our business, and we may experience similar difficulties in the future. If we are unable to attract, assimilate and retain management and other employees with the necessary skills, we may not be able to grow or successfully operate our business.
A number of our fabrics and manufacturing technology are not patented and can be imitated by our competitors.
The intellectual property rights in the technology, fabrics and processes used to manufacture our products are generally owned or controlled by our suppliers and are generally not unique to us. Our ability to obtain patent protection for our products is limited and we currently own a limited number of fabric or process patents. As a result, our current and future competitors are able to manufacture and sell products with performance characteristics and fabrications similar to certain of our products. Because many of our competitors have significantly greater financial, distribution, marketing and other resources than we do, they may be able to manufacture and sell products based on certain of our fabrics and manufacturing technology at lower prices than we can. If our competitors do sell similar products to ours at lower prices, our net revenues and profitability could be materially adversely affected.
Our intellectual property rights could potentially conflict with the rights of others and we may be prevented from selling or providing some of our products.
Our success depends in large part on our brand image. We believe our registered and common law trademarks have significant value and are important to identifying and differentiating our products from those of our competitors and creating and sustaining demand for our products. In addition, patents are increasingly important with respect to our innovative products and new businesses and investments, particularly in our Connected Fitness business. From time to time, we have received or brought claims relating to intellectual property rights of others, and we expect such claims will continue or increase, particularly as we expand our business and the number of products we offer. Any such claim, regardless of its merit, could be expensive and time consuming to defend or prosecute. Successful infringement claims against us could result in significant monetary liability or prevent us from selling or providing some of our products. In addition, resolution of claims may require us to redesign our products, license rights belonging to third parties or cease using those rights altogether. Any of these events could harm our business and have a material adverse effect on our results of operations and financial condition.
Our failure to protect our intellectual property rights could diminish the value of our brand, weaken our competitive position and reduce our net revenues.
We currently rely on a combination of copyright, trademark and trade dress laws, patent laws, unfair competition laws, confidentiality procedures and licensing arrangements to establish and protect our intellectual property rights. The steps taken by us to protect our proprietary rights may not be adequate to prevent infringement of our trademarks and proprietary rights by others, including imitation of our products and misappropriation of our brand. In addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States, and it may be more difficult for us to successfully challenge the use of our proprietary rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the value of our brand could be diminished and our competitive position may suffer.
From time to time, we discover unauthorized products in the marketplace that are either counterfeit reproductions of our products or unauthorized irregulars that do not meet our quality control standards. If we are unsuccessful in challenging a third party’s products on the basis of trademark infringement, continued sales of their products could adversely impact our brand, result in the shift of consumer preferences away from our products and adversely affect our business.
We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation.
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We are subject to periodic claims and litigation that could result in unexpected expenses and could ultimately be resolved against us.
From time to time, we are involved in litigation and other proceedings, including matters related to commercial disputes and intellectual property, as well as trade, regulatory and other claims related to our business. Any of these proceedings could result in damages, fines or other penalties, divert financial and management resources and result in significant legal fees. Although we cannot predict the outcome of any particular proceeding, an unfavorable outcome may have an adverse impact on our business, financial condition and results of operations. In addition, any proceeding could negatively impact our reputation among our customers and our brand image.
The trading price for our Class A common stock may fluctuate from time to time, and if the shares of our new class of non-voting Class C common stock are distributed as expected, the trading price of that class may experience volatility and may impact the trading price for our Class A common stock.
The trading price of our Class A common stock may fluctuate from time to time in response to various factors, some of which are beyond our control. These factors may include, among others, overall performance of the equity markets and the economy as a whole, variations in our quarterly results of operations or those of our competitors, our ability to meet our published guidance and securities analyst expectations, or recommendations by securities analysts.
In addition, we have previously announced the intention of our Board of Directors to consider distributing shares of our new non-voting Class C common stock as a dividend to the holders of our Class A and Class B common stock. The decision to proceed with, and timing of, this dividend will be made by our Board of Directors in its discretion and there can be no assurance that this dividend will be declared or paid. We expect that the market price for the shares of our Class A common stock will generally reflect the effect of a two-for-one stock split once the dividend is distributed. Although we plan to list the new Class C common stock on the New York Stock Exchange, we cannot predict whether, or to what extent, a liquid trading market will develop for the new class. If it does not or if the Class C common stock is not attractive to targets as an acquisition currency or to our employees as an equity incentive, we may not achieve all of the benefits we anticipated from creating this new class.
As in the case of the Class A common stock, the trading price for the Class C common stock may also be volatile and affected by the factors noted above, as well as by the difference in voting rights between the Class A and Class C common stock. Whether or not the Class C common stock is included in stock indices in the future, such as the S&P 500 Index, may also affect the trading prices of our Class A and Class C common stock.
Kevin Plank, our Chairman and Chief Executive Officer controls the majority of the voting power of our common stock.
Our Class A common stock has one vote per share and our Class B common stock has 10 votes per share. Our Chairman and Chief Executive Officer, Kevin A. Plank, beneficially owns all outstanding shares of Class B common stock. As a result, Mr. Plank has the majority voting control and is able to direct the election of all of the members of our Board of Directors and other matters we submit to a vote of our stockholders. The Class B common stock automatically converts to Class A common stock when Mr. Plank beneficially owns less than 15.0% of the total number of shares of Class A and Class B common stock outstanding and in other limited circumstances. This concentration of voting control may have various effects including, but not limited to, delaying or preventing a change of control or allowing us to take action that the majority of our shareholders do not otherwise support. In addition, if our Class C common stock is issued, the Class C common stock will carry no voting rights (except in limited circumstances), and the continued issuance of the Class C common stock in future stock-based acquisition transactions or to fund employee equity incentive programs, could prolong the duration of Mr. Plank’s voting control.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
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ITEM 2. | PROPERTIES |
The following includes a summary of the principal properties that we own or lease as of December 31, 2015.
Our principal executive and administrative offices are located at an office complex in Baltimore, Maryland, which includes 400 thousand square feet of office space that we own and 126 thousand square feet that we are leasing. In 2014, we entered into a lease for an additional 130 thousand square feet of office space located near our principal offices in Baltimore in order to expand our corporate headquarters. The lease has a ten year term beginning in 2016. For our European headquarters, we lease an office in Amsterdam, the Netherlands, and we maintain an international management office in Panama. Additionally, we lease space in Austin, Texas, Denver, Colorado, San Francisco, California and Copenhagen, Denmark for our Connected Fitness businesses.
We lease our primary distribution facilities, which are located in Glen Burnie, Maryland, Mount Juliet, Tennessee and Rialto, California. Our Glen Burnie facilities include a total of 830 thousand square feet, with options to renew various portions of the facilities on dates ranging from December 2016 to September 2021. Our Mount Juliet facility is a 1.0 million square foot facility, with options to renew the lease term through December 2041. Our Rialto facility is a 1.2 million square foot facility with a lease term through May 2023. We believe our distribution facilities and space available through our third-party logistics providers will be adequate to meet our short term needs.
In addition, as of December 31, 2015, we leased 191 brand and factory house stores located primarily in the United States, Brazil, Canada, China, Chile and Mexico with lease end dates in 2016 through 2031. We also lease additional office space for sales, quality assurance and sourcing, marketing, and administrative functions. We anticipate that we will be able to extend these leases that expire in the near future on satisfactory terms or relocate to other locations.
ITEM 3. | LEGAL PROCEEDINGS |
From time to time, we have been involved in litigation and other proceedings, including matters related to commercial disputes and intellectual property, as well as trade, regulatory and other claims related to our business. See Note 7 to our Consolidated Financial Statements for information on certain legal proceedings, which is incorporated by reference herein.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are:
Name | Age | Position | ||
Kevin A. Plank | 43 | Chief Executive Officer and Chairman of the Board | ||
Kerry D. Chandler | 51 | Chief Human Resources Officer | ||
Paul Fipps | 43 | Chief Information Officer | ||
Kip J. Fulks | 43 | Chief Marketing Officer | ||
James H. Hardy, Jr. | 56 | Executive Vice President, Global Operations | ||
Karl-Heinz Maurath | 54 | Chief Revenue Officer | ||
Matthew C. Mirchin | 56 | President, North America | ||
Lawrence P. Molloy | 54 | Chief Financial Officer | ||
Henry B. Stafford | 41 | Chief Merchandising Officer | ||
Robin Thurston | 43 | Chief Digital Officer | ||
Kevin A. Plank has served as our Chief Executive Officer and Chairman of the Board of Directors since 1996. Mr. Plank also serves on the Board of Directors of the National Football Foundation and College Hall of Fame, Inc. and is a member of the Board of Trustees of the University of Maryland College Park Foundation.
Kerry D. Chandler has been Chief Human Resources Officer since January 2015. Prior to joining our Company, she served as Global Head of Human Resources for Christie’s International from February 2014 to November 2014. Prior thereto, Ms. Chandler served as the Executive Vice President of Human Resources for the National Basketball Association from January 2011 to January 2014 and Senior Vice President of Human Resources from October 2007 to December 2010. Ms. Chandler also held executive positions in human resources for the Walt Disney Company, including Senior Vice President of Human Resources for ESPN. Prior to that, Ms. Chandler also held various senior management positions in Human Resources for IBM, and Motorola, Inc. and she began her career at the McDonnell Douglas Corporation.
Paul Fipps has been Chief Information Officer since March 2015. Prior to that, he served as Senior Vice President of Global Operations from January 2014 to February 2015. Prior to joining our Company, he served as Chief Information Officer and Corporate Vice President of Business Services at The Charmer Sunbelt Group (CSG), a leading distributor of fine wines, spirits, beer, bottled water and other beverages from May 2009 to December 2013, as Vice President of Business Services from January 2007 to April 2009 and in other leadership positions from 1998 to 2007.
Kip J. Fulks has been Chief Marketing Officer since November 2015. Prior to that, he served as President of Footwear and Innovation from March 2015 to October 2015, Chief Operating Officer from September 2011 to February 2015 and as President of Product from October 2013 to November 2014. Prior thereto, Mr. Fulks served as Executive Vice President of Product from January 2011 to August 2011 and Senior Vice President of Outdoor and Innovation from March 2008 to December 2010. He also held various senior management positions in Outdoor, Sourcing, Quality Assurance and Product Development from 1997 to February 2008.
James H. Hardy, Jr. has been Executive Vice President of Global Operations since March 2015. Prior to that, he served as Chief Supply Chain Officer from April 2012 to February 2015. Prior to joining our Company, he served as Senior Vice President of Operations for Hospira, a leading manufacturer of pharmaceutical products, from January 2011 to April 2012 and as Corporate Vice President of Supply Chain from October 2009 to December 2010. Prior thereto, Mr. Hardy served as Senior Vice President of Supply Chain for Dial Corporation from October 2007 to October 2009, as Executive Vice President of Product Supply for ConAgra Foods, Inc. from 2005 to 2007 and held various supply chain management leadership positions at The Clorox Company and The Procter & Gamble Company.
Karl-Heinz (Charlie) Maurath has been Chief Revenue Officer since November 2015. Prior thereto he served as President of International from September 2012 to October 2015. Prior to joining our Company, he served for 22 years in various leadership positions with Adidas, including Senior Vice President, Adidas Group Latin America, from 2003 to 2012 with overall responsibility for Latin America including the Reebok and Taylor Made businesses and Vice President, Adidas Nordic, from 2000 to 2003 responsible for its business in the Nordic region and the Baltic states. Prior thereto, Mr. Maurath served in other management positions for Adidas, including Managing Director of its business in Sweden and Thailand and Area Manger of sales and marketing for its distributor and licensee businesses in Scandinavia and Latin America. Mr. Maurath, in his capacity a former director of a subsidiary of Adidas, is currently named as a defendant in a criminal tax investigation by regulatory authorities in Argentina related to certain tax matters of the Adidas subsidiary in 2006. In November 2013, the court ruled that there were currently no grounds upon which to indict Mr. Maurath. Although the case remains open pending a final
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determination, the Company believes that the matter will ultimately be dismissed. The Company believes this is no way impacts Mr. Maurath's integrity or ability to serve as an executive officer.
Matthew C. Mirchin has been President of North America since December 2014. Prior to that, he served as Executive Vice President, Global Marketing from October 2013 to November 2014, Senior Vice President, Global Brand and Sports Marketing from March 2012 to September 2013 and Senior Vice President of Sports Marketing from January 2010 to February 2012. He also held various senior management positions in Sales from May 2005 to December 2009. Prior to joining our Company, Mr. Mirchin served as President of Retail and Team Sports from 2002 to 2005 and President of Team Sports from 2001 to 2002 for Russell Athletic. Prior to joining Russell Athletic, Mr. Mirchin served in various capacities at the Champion Division of Sara Lee Corporation from 1994 to 2001 and started his career with the NBA.
Lawrence (Chip) Molloy has been Chief Financial Officer since January 2016. Prior to joining our Company, he served as Senior Advisor to Roark Capital Group, a private equity firm from October 2014 to December 2015. Prior thereto, Mr. Molloy served as Special Advisor to PetSmart, Inc. from June 2013 to April 2014, and had previously served as Chief Financial Officer of PetSmart from September 2007 to June 2013. Prior thereto, he worked with Circuit City Stores, Inc., and served as Chief Financial Officer of Retail from 2006 to 2007, Vice President of Financial Planning and Analysis from 2004 to 2006 and Director of Financial Planning and Analysis from 2003 to 2004. Prior to Circuit City, he served in various leadership, planning and strategy roles for Capital One Financial Corporation, AGL Capital Investments, LLC, Deloitte & Touche Consulting Group and the U.S. Navy. He served ten years in the Navy as a fighter pilot, later retiring from the Navy Reserve with a rank of Commander.
Henry B. Stafford has been Chief Merchandising Officer since December 2014. Prior to that, he served as President of North America from October 2013 to November 2014, Senior Vice President of Apparel, Outdoor & Accessories from September 2011 to September 2013 and as Senior Vice President of Apparel from June 2010 to August 2011. Prior to joining our company, he worked with American Eagle Outfitters as Senior Vice President and Chief Merchandising Officer of The AE Brand from April 2007 to May 2010, General Merchandise Manager and Senior Vice President of Men’s and AE Canadian Division from April 2005 to March 2007 and General Merchandise Manager and Vice President of Men’s from September 2003 to March 2005. Prior thereto, Mr. Stafford served in a variety of capacities for Old Navy from 1998 to 2003, including Divisional Merchandising Manager for Men’s Tops from 2001 to 2003, and served as a buyer for Abercrombie and Fitch from 1996 to 1998.
Robin Thurston has been Chief Digital Officer since December 2014. Prior to that, he served as Senior Vice President of Digital from December 2013 to November 2014. Mr. Thurston joined our Company in December 2013 when Under Armour acquired MapMyFitness, Inc. Mr. Thurston co-founded MapMyFitness in February 2007, and built it into one of the world’s largest open fitness tracking platforms. Prior thereto, Mr. Thurston worked in the investment management industry.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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PART II
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Under Armour’s Class A Common Stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “UA”. As of January 31, 2016, there were 1,214 record holders of our Class A Common Stock and 4 record holders of Class B Convertible Common Stock which are beneficially owned by our Chief Executive Officer and Chairman of the Board Kevin A. Plank. The following table sets forth by quarter the high and low sale prices of our Class A Common Stock on the NYSE during 2015 and 2014.
High | Low | |||||||
2015 | ||||||||
First Quarter (January 1 – March 31) | $ | 82.67 | $ | 63.77 | ||||
Second Quarter (April 1 – June 30) | $ | 88.15 | $ | 76.15 | ||||
Third Quarter (July 1 – September 30) | $ | 105.89 | $ | 80.12 | ||||
Fourth Quarter (October 1 – December 31) | $ | 104.74 | $ | 77.78 | ||||
2014 | ||||||||
First Quarter (January 1 – March 31) | $ | 62.40 | $ | 40.98 | ||||
Second Quarter (April 1 – June 30) | $ | 60.17 | $ | 45.05 | ||||
Third Quarter (July 1 – September 30) | $ | 73.42 | $ | 56.79 | ||||
Fourth Quarter (October 1 – December 31) | $ | 72.98 | $ | 60.00 | ||||
Stock Split
On March 17, 2014, the Board of Directors declared a two-for-one stock split of the Company's Class A and Class B common stock, which was effected in the form of a 100% common stock dividend distributed on April 14, 2014. Stockholders' equity and all references to share and per share amounts herein and in the accompanying consolidated financial statements have been retroactively adjusted to reflect this two-for-one stock split for all periods presented.
Unregistered Sales of Equity Securities
From October 1, 2015 through December 31, 2015, we entered into contractual arrangements to issue 104,932 deferred stock units automatically exchangeable for shares of Class A Common Stock on a one-for-one basis to one or more of our marketing partners in connection with their entering into endorsement and other marketing services agreements with us. These offers of our securities were made in reliance upon Section 4(2) under the Securities Act and did not involve any public offering. We did not receive any cash consideration in connection with these arrangements.
Dividends
No cash dividends were declared or paid during 2015 or 2014 on any class of our common stock. We currently anticipate we will retain any future earnings for use in our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. In addition, we may be limited in our ability to pay dividends to our stockholders under our credit facility. Refer to “Financial Position, Capital Resources and Liquidity” within Management’s Discussion and Analysis and Note 6 to the Consolidated Financial Statements for further discussion of our credit facility.
Stock Compensation Plans
The following table contains certain information regarding our equity compensation plans.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||
Equity compensation plans approved by security holders | 6,762,094 | $ | 14.52 | 20,782,233 | ||||||
Equity compensation plans not approved by security holders | 2,138,612 | $ | 9.25 | — | ||||||
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The number of securities to be issued upon exercise of outstanding options, warrants and rights issued under equity compensation plans approved by security holders includes 3.8 million restricted stock units and deferred stock units issued to employees, non-employees and directors of Under Armour; these restricted stock units and deferred stock units are not included in the weighted average exercise price calculation above. The number of securities remaining available for future issuance includes 18.1 million shares of our Class A Common Stock under our Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan (“2005 Stock Plan”) and 2.7 million shares of our Class A Common Stock under our Employee Stock Purchase Plan. In addition to securities issued upon the exercise of stock options, warrants and rights, the 2005 Stock Plan authorizes the issuance of restricted and unrestricted shares of our Class A Common Stock and other equity awards. Refer to Note 12 to the Consolidated Financial Statements for information required by this Item regarding the material features of each plan.
The number of securities issued upon exercise of outstanding options, warrants and rights issued under equity compensation plans not approved by security holders includes 1,920.0 thousand fully vested and non-forfeitable warrants granted in 2006 to NFL Properties LLC as partial consideration for footwear promotional rights, and 218.6 thousand shares of our Class A Common Stock issued in connection with the delivery of shares pursuant to deferred stock units granted to certain of our marketing partners. These deferred stock units are not included in the weighted average exercise price calculation above.
Refer to Note 12 to the Consolidated Financial Statements for a further discussion on the warrants. The deferred stock units are issued 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 deferred stock units to be granted and the delivery dates for the shares, which range from a 1 to 10 year period, depending on the contract. The deferred stock units are non-forfeitable.
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Stock Performance Graph
The stock performance graph below compares cumulative total return on Under Armour, Inc. Class A Common Stock to the cumulative total return of the S&P 500 Index and S&P 500 Apparel, Accessories and Luxury Goods Index from December 31, 2010 through December 31, 2015. The graph assumes an initial investment of $100 in Under Armour and each index as of December 31, 2010 and reinvestment of any dividends. The performance shown on the graph below is not intended to forecast or be indicative of possible future performance of our common stock.
12/31/2010 | 12/31/2011 | 12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | ||||||||||||||||||
Under Armour, Inc. | $ | 100.00 | $ | 130.91 | $ | 176.99 | $ | 318.83 | $ | 495.26 | $ | 587.96 | |||||||||||
S&P 500 | $ | 100.00 | $ | 102.11 | $ | 118.45 | $ | 156.82 | $ | 178.28 | $ | 180.75 | |||||||||||
S&P 500 Apparel, Accessories & Luxury Goods | $ | 100.00 | $ | 124.36 | $ | 127.57 | $ | 159.37 | $ | 160.95 | $ | 122.68 | |||||||||||
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ITEM 6. | SELECTED FINANCIAL DATA |
The following selected financial data is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.
Year Ended December 31, | ||||||||||||||||||||
(In thousands, except per share amounts) | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Net revenues | $ | 3,963,313 | $ | 3,084,370 | $ | 2,332,051 | $ | 1,834,921 | $ | 1,472,684 | ||||||||||
Cost of goods sold | 2,057,766 | 1,572,164 | 1,195,381 | 955,624 | 759,848 | |||||||||||||||
Gross profit | 1,905,547 | 1,512,206 | 1,136,670 | 879,297 | 712,836 | |||||||||||||||
Selling, general and administrative expenses | 1,497,000 | 1,158,251 | 871,572 | 670,602 | 550,069 | |||||||||||||||
Income from operations | 408,547 | 353,955 | 265,098 | 208,695 | 162,767 | |||||||||||||||
Interest expense, net | (14,628 | ) | (5,335 | ) | (2,933 | ) | (5,183 | ) | (3,841 | ) | ||||||||||
Other expense, net | (7,234 | ) | (6,410 | ) | (1,172 | ) | (73 | ) | (2,064 | ) | ||||||||||
Income before income taxes | 386,685 | 342,210 | 260,993 | 203,439 | 156,862 | |||||||||||||||
Provision for income taxes | 154,112 | 134,168 | 98,663 | 74,661 | 59,943 | |||||||||||||||
Net income | $ | 232,573 | $ | 208,042 | $ | 162,330 | $ | 128,778 | $ | 96,919 | ||||||||||
Net income available per common share | ||||||||||||||||||||
Basic | $ | 1.08 | $ | 0.98 | $ | 0.77 | $ | 0.62 | $ | 0.47 | ||||||||||
Diluted | $ | 1.05 | $ | 0.95 | $ | 0.75 | $ | 0.61 | $ | 0.46 | ||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
Basic | 215,498 | 213,227 | 210,696 | 208,686 | 206,280 | |||||||||||||||
Diluted | 220,868 | 219,380 | 215,958 | 212,760 | 210,104 | |||||||||||||||
Dividends declared | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
At December 31, | ||||||||||||||||||||
(In thousands) | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Cash and cash equivalents | $ | 129,852 | $ | 593,175 | $ | 347,489 | $ | 341,841 | $ | 175,384 | ||||||||||
Working capital (1) | 1,019,953 | 1,127,772 | 702,181 | 651,370 | 506,056 | |||||||||||||||
Inventories | 783,031 | 536,714 | 469,006 | 319,286 | 324,409 | |||||||||||||||
Total assets | 2,868,900 | 2,095,083 | 1,577,741 | 1,157,083 | 919,210 | |||||||||||||||
Total debt, including current maturities | 669,000 | 284,201 | 152,923 | 61,889 | 77,724 | |||||||||||||||
Total stockholders’ equity | $ | 1,668,222 | $ | 1,350,300 | $ | 1,053,354 | $ | 816,922 | $ | 636,432 | ||||||||||
(1) | Working capital is defined as current assets minus current liabilities. |
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The information contained in this section should be read in conjunction with our Consolidated Financial Statements and related notes and the information contained elsewhere in this Form 10-K under the captions “Risk Factors,” “Selected Financial Data,” and “Business.”
Overview
We are a leading developer, marketer and distributor of branded performance apparel, footwear and accessories. The brand’s moisture-wicking fabrications are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. Our products are sold worldwide and worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as by consumers with active lifestyles. The Under Armour Connected Fitness platform powers the world's largest digital health and fitness community and our strategy is focused on engaging with these consumers and increasing awareness and sales of our products. We plan to grow this community by developing innovative applications, services and other digital solutions to impact how athletes and fitness-minded individuals train, perform and live.
Our net revenues grew to $3,963.3 million in 2015 from $1,472.7 million in 2011. We believe that our growth in net revenues has been driven by a growing interest in performance products and the strength of the Under Armour brand in the marketplace. We plan to continue to increase our net revenues over the long term by increased sales of our apparel, footwear and accessories, expansion of our wholesale distribution sales channel, growth in our direct to consumer sales channel and expansion in international markets and engaging with consumers through our Connected Fitness business. Our direct to consumer sales channel includes our brand and factory house stores and websites. New offerings for 2015 include our Stephen Curry signature basketball shoes and new UA SpeedForm® running introductions.
A large majority of our products are sold in North America; however, we believe our products appeal to athletes and consumers with active lifestyles around the globe. Internationally, our net revenues are generated from a mix of wholesale sales to retailers, sales to distributors and sales through our direct to consumer sales channels in Europe, Latin America, and Asia-Pacific. In addition, a third party licensee sells our products in Japan and Korea.
Our operating segments include North America; Latin America; Europe, the Middle East and Africa (“EMEA”); Asia-Pacific; and Connected Fitness. Due to the insignificance of the Latin America, EMEA, and Asia-Pacific operating segments, they have been combined into International for disclosure purposes.
We believe there is an increasing recognition of the health benefits of an active lifestyle. We believe this trend provides us with an expanding consumer base for our products. We also believe there is a continuing shift in consumer demand from traditional non-performance products to performance products, which are intended to provide better performance by wicking perspiration away from the skin, helping to regulate body temperature and enhancing comfort. We believe that these shifts in consumer preferences and lifestyles are not unique to the United States, but are occurring in a number of markets globally, thereby increasing our opportunities to introduce our performance products to new consumers. We plan to continue to grow our business over the long term through increased sales of our apparel, footwear and accessories, expansion of our wholesale distribution, growth in our direct to consumer sales channel and expansion in international markets.
Although we believe these trends will facilitate our growth, we also face potential challenges that could limit our ability to take advantage of these opportunities, including, among others, the risk of general economic or market conditions that could affect consumer spending and the financial health of our retail customers. In addition, we may not be able to effectively manage our growth and a more complex global business. We may not consistently be able to anticipate consumer preferences and develop new and innovative products that meet changing preferences in a timely manner. Furthermore, our industry is very competitive, and competition pressures could cause us to reduce the prices of our products or otherwise affect our profitability. We also rely on third-party suppliers and manufacturers outside the U.S. to provide fabrics and to produce our products, and disruptions to our supply chain could harm our business. For a more complete discussion of the risks facing our business, refer to the “Risk Factors” section included in Item 1A.
General
Net revenues comprise net sales, license revenues and Connected Fitness revenues. Net sales comprise sales from our primary product categories, which are apparel, footwear and accessories. Our license revenues primarily consist of fees paid to
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us by our licensees in exchange for the use of our trademarks on our products. Our Connected Fitness revenues consist of digital advertising, digital fitness platform licenses and subscriptions from our Connected Fitness business.
Cost of goods sold consists primarily of product costs, inbound freight and duty costs, outbound freight costs, handling costs to make products floor-ready to customer specifications, royalty payments to endorsers based on a predetermined percentage of sales of selected products and write downs for inventory obsolescence. The fabrics in many of our products are made primarily of petroleum-based synthetic materials. Therefore our product costs, as well as our inbound and outbound freight costs, could be affected by long term pricing trends of oil. In general, as a percentage of net revenues, we expect cost of goods sold associated with our apparel and accessories to be lower than that of our footwear. A limited portion of cost of goods sold is associated with license and Connected Fitness revenues, primarily website hosting costs.
We include outbound freight costs associated with shipping goods to customers as cost of goods sold; however, we include the majority of outbound handling costs as a component of selling, general and administrative expenses. As a result, our gross profit may not be comparable to that of other companies that include outbound handling costs in their cost of goods sold. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate our distribution facilities. These costs were $63.7 million, $55.3 million and $46.1 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Our selling, general and administrative expenses consist of costs related to marketing, selling, product innovation and supply chain and corporate services. Beginning in 2015, we consolidated our selling, general and administrative expenses into
two primary categories: marketing and other. The other category is the sum of our previously outlined selling, product
innovation and supply chain and corporate services categories. Personnel costs are included in these categories based on the employees’ function. Personnel costs include salaries, benefits, incentives and stock-based compensation related to our employees. Our marketing costs are an important driver of our growth. Marketing costs consist primarily of commercials, print ads, league, team, player and event sponsorships and depreciation expense specific to our in-store fixture program for our concept shops.
Other expense, net consists of unrealized and realized gains and losses on our foreign currency derivative financial instruments and unrealized and realized gains and losses on adjustments that arise from fluctuations in foreign currency exchange rates relating to transactions generated by our international subsidiaries.
Results of Operations
The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues:
Year Ended December 31, | ||||||||||||
(In thousands) | 2015 | 2014 | 2013 | |||||||||
Net revenues | $ | 3,963,313 | $ | 3,084,370 | $ | 2,332,051 | ||||||
Cost of goods sold | 2,057,766 | 1,572,164 | 1,195,381 | |||||||||
Gross profit | 1,905,547 | 1,512,206 | 1,136,670 | |||||||||
Selling, general and administrative expenses | 1,497,000 | 1,158,251 | 871,572 | |||||||||
Income from operations | 408,547 | 353,955 | 265,098 | |||||||||
Interest expense, net | (14,628 | ) | (5,335 | ) | (2,933 | ) | ||||||
Other expense, net | (7,234 | ) | (6,410 | ) | (1,172 | ) | ||||||
Income before income taxes | 386,685 | 342,210 | 260,993 | |||||||||
Provision for income taxes | 154,112 | 134,168 | 98,663 | |||||||||
Net income | $ | 232,573 | $ | 208,042 | $ | 162,330 | ||||||
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Year Ended December 31, | |||||||||
(As a percentage of net revenues) | 2015 | 2014 | 2013 | ||||||
Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | |||
Cost of goods sold | 51.9 | 51.0 | 51.3 | ||||||
Gross profit | 48.1 | 49.0 | 48.7 | ||||||
Selling, general and administrative expenses | 37.8 | 37.5 | 37.3 | ||||||
Income from operations | 10.3 | 11.5 | 11.4 | ||||||
Interest expense, net | (0.4 | ) | (0.2 | ) | (0.1 | ) | |||
Other expense, net | (0.2 | ) | (0.2 | ) | (0.1 | ) | |||
Income before income taxes | 9.7 | 11.1 | 11.2 | ||||||
Provision for income taxes | 3.8 | 4.4 | 4.2 | ||||||
Net income | 5.9 | % | 6.7 | % | 7.0 | % | |||
Consolidated Results of Operations
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Net revenues increased $878.9 million, or 28.5%, to $3,963.3 million in 2015 from $3,084.4 million in 2014. Net revenues by product category are summarized below:
Year Ended December 31, | |||||||||||||||
(In thousands) | 2015 | 2014 | $ Change | % Change | |||||||||||
Apparel | $ | 2,801,062 | $ | 2,291,520 | $ | 509,542 | 22.2 | % | |||||||
Footwear | 677,744 | 430,987 | 246,757 | 57.3 | |||||||||||
Accessories | 346,885 | 275,409 | 71,476 | 26.0 | |||||||||||
Total net sales | 3,825,691 | 2,997,916 | 827,775 | 27.6 | |||||||||||
License | 84,207 | 67,229 | 16,978 | 25.3 | |||||||||||
Connected Fitness | 53,415 | 19,225 | 34,190 | 177.8 | |||||||||||
Total net revenues | $ | 3,963,313 | $ | 3,084,370 | $ | 878,943 | 28.5 | % | |||||||
The increase in net sales was driven primarily by:
• | Apparel unit sales growth and new offerings in multiple lines led by training, golf and running; and |
• | Footwear unit sales growth, led by running and basketball and the expansion of our footwear offerings internationally. |
License revenues increased $17.0 million, or 25.3%, to $84.2 million in 2015 from $67.2 million in 2014. This increase in license revenues was driven primarily by increased distribution of our licensed products in North America and Japan.
Connected Fitness revenue increased $34.2 million, or 177.8%, to $53.4 million in 2015 from $19.2 million in 2014 primarily driven by our Connected Fitness acquisitions in the first quarter of 2015 and revenue growth in our existing Connected Fitness business.
Gross profit increased $393.3 million to $1,905.5 million in 2015 from $1,512.2 million in 2014. Gross profit as a percentage of net revenues, or gross margin, decreased 90 basis points to 48.1% in 2015 compared to 49.0% in 2014. The decrease in gross margin percentage was primarily driven by the following:
• | approximate 70 basis point decrease due to strengthening of the U.S. dollar negatively impacting our gross margins within our businesses outside the United States, which we expect to continue through 2016 on a more limited basis; |
• | approximate 30 basis point decrease driven by higher inbound airfreight costs necessary to service our customers, which we do not expect to continue through 2016; |
• | approximate 30 basis point decrease driven by sales mix in North America, which we expect to continue through the first half of 2016; and |
• | approximate 20 basis point decrease driven by higher liquidation in both footwear and apparel. |
The above increases were partially offset by:
• | approximate 60 basis point increase driven primarily by favorable product input costs in our North America and International businesses, which we expect to continue through 2016. |
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Selling, general and administrative expenses increased $338.7 million to $1,497.0 million in 2015 from $1,158.3 million in 2014. As a percentage of net revenues, selling, general and administrative expenses increased to 37.8% in 2015 from 37.5% in 2014. These changes were primarily attributable to the following:
• | Marketing costs increased $84.8 million to $417.8 million in 2015 from $333.0 million in 2014. This increase was primarily due to key marketing campaigns and investments in sponsorships. As a percentage of net revenues, marketing costs decreased to 10.5% in 2015 from 10.8% in 2014. |
• | Other costs increased $253.9 million to $1,079.2 million in 2015 from $825.3 million in 2014. This increase was primarily due to higher personnel and other costs incurred for the continued expansion of our direct to consumer distribution channel, including increased investments for our brand house stores. This increase is also due to additional investments in our Connected Fitness business. As a percentage of net revenues, other costs increased to 27.2% in 2015 from 26.8% in 2014. |
Income from operations increased $54.5 million, or 15.4%, to $408.5 million in 2015 from $354.0 million in 2014. Income from operations as a percentage of net revenues decreased to 10.3% in 2015 from 11.5% in 2014.
Interest expense, net increased $9.3 million to $14.6 million in 2015 from $5.3 million in 2014. This increase was primarily due to higher term loan and revolving credit facility borrowings during 2015 primarily used to finance our two Connected Fitness acquisitions.
Other expense, net increased $0.8 million to $7.2 million in 2015 from $6.4 million in 2014. This increase was due to higher net losses on the combined foreign currency exchange rate changes on transactions denominated in foreign currencies and our foreign currency derivative financial instruments in 2015.
Provision for income taxes increased $19.9 million to $154.1 million in 2015 from $134.2 million in 2014. Our effective tax rate was 39.9% in 2015 compared to 39.2% in 2014. Our effective tax rate for 2015 was higher than the effective tax rate for 2014 primarily due to increased non-deductible costs incurred in connection with our Connected Fitness acquisitions in 2015.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Net revenues increased $752.3 million, or 32.3%, to $3,084.4 million in 2014 from $2,332.1 million in 2013. Net revenues by product category are summarized below:
Year Ended December 31, | |||||||||||||||
(In thousands) | 2014 | 2013 | $ Change | % Change | |||||||||||
Apparel | $ | 2,291,520 | $ | 1,762,150 | $ | 529,370 | 30.0 | % | |||||||
Footwear | 430,987 | 298,825 | 132,162 | 44.2 | |||||||||||
Accessories | 275,409 | 216,098 | 59,311 | 27.4 | |||||||||||
Total net sales | 2,997,916 | 2,277,073 | 720,843 | 31.7 | |||||||||||
License revenues | 67,229 | 53,910 | 13,319 | 24.7 | |||||||||||
Connected Fitness | 19,225 | 1,068 | 18,157 | 1,700.1 | |||||||||||
Total net revenues | $ | 3,084,370 | $ | 2,332,051 | $ | 752,319 | 32.3 | % | |||||||
The increase in net sales were driven primarily by:
• | Apparel unit sales growth and new offerings in multiple lines led by training, hunt and golf; and |
• | Footwear unit sales growth, led by running and basketball. |
License revenues increased $13.3 million, or 24.7%, to $67.2 million in 2014 from $53.9 million in 2013. This increase in license revenues was primarily a result of increased distribution and continued unit volume growth by our licensees.
Connected Fitness revenue increased $18.1 million to $19.2 million in 2014 from $1.1 million in 2013 primarily due to a full year of revenue from our Connected Fitness business in 2014 compared to one month in 2013.
Gross profit increased $375.5 million to $1,512.2 million in 2014 from $1,136.7 million in 2013. Gross profit as a percentage of net revenues, or gross margin, increased 30 basis points to 49.0% in 2014 compared to 48.7% in 2013. The increase in gross margin percentage was primarily driven by the following:
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• | approximate 20 basis point increase driven primarily by decreased sales mix of excess inventory through our factory house outlet stores; and |
• | approximate 20 basis point increase as a result of higher duty costs recorded during the prior year on certain products imported in previous years. |
The above increases were partially offset by:
• | approximate 10 basis point decrease by unfavorable foreign currency exchange rate fluctuations. |
Selling, general and administrative expenses increased $286.7 million to $1,158.3 million in 2014 from $871.6 million in 2013. As a percentage of net revenues, selling, general and administrative expenses increased to 37.5% in 2014 from 37.3% in 2013. These changes were primarily attributable to the following:
• | Marketing costs increased $86.5 million to $333.0 million in 2014 from $246.5 million in 2013 primarily due to increased global sponsorship of professional teams and athletes. As a percentage of net revenues, marketing costs increased to 10.8% in 2014 from 10.5%. |
• | Other costs increased increased $200.2 million to $825.3 million in 2014 from $625.1 million in 2013. This increase was primarily due to higher personnel and other costs incurred for the continued expansion of our direct to consumer distribution channel, including increased investment for our brand house stores. This increase was also due to additional investment in our Connected Fitness business. As a percentage of net revenues, other costs were unchanged at 26.8% in 2014 and 2013. |
Income from operations increased $88.9 million, or 33.5%, to $354.0 million in 2014 from $265.1 million in 2013. Income from operations as a percentage of net revenues increased to 11.5% in 2014 from 11.4% in 2013.
Interest expense, net increased $2.4 million to $5.3 million in 2014 from $2.9 million in 2013. This increase was primarily due to the $150.0 million and $100.0 million term loans borrowed during 2014.
Other expense, net increased $5.2 million to $6.4 million in 2014 from $1.2 million in 2013. This increase was due to higher net losses in 2014 on the combined foreign currency exchange rate changes on transactions denominated in foreign currencies and our foreign currency derivative financial instruments as compared to 2013.
Provision for income taxes increased $35.5 million to $134.2 million in 2014 from $98.7 million in 2013. Our effective tax rate was 39.2% in 2014 compared to 37.8% in 2013. Our effective tax rate for 2014 was higher than the effective tax rate for 2013 primarily due to increased foreign investments driving a lower proportion of foreign taxable income in 2014 and state tax credits received in 2013.
Segment Results of Operations
The net revenues and operating income (loss) associated with our segments are summarized in the following tables. The majority of corporate expenses within North America have not been allocated to international or Connected Fitness; however, certain costs and revenues included within North America in the prior period have been allocated to Connected Fitness in the current period. Prior period segment data has been recast by an immaterial amount within the tables to conform to the current period presentation.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Net revenues by segment are summarized below:
Year Ended December 31, | |||||||||||||||
(In thousands) | 2015 | 2014 | $ Change | % Change | |||||||||||
North America | $ | 3,455,737 | $ | 2,796,374 | $ | 659,363 | 23.6 | % | |||||||
International | 454,161 | 268,771 | 185,390 | 69.0 | |||||||||||
Connected Fitness | 53,415 | 19,225 | 34,190 | 177.8 | |||||||||||
Total net revenues | $ | 3,963,313 | $ | 3,084,370 | $ | 878,943 | 28.5 | % | |||||||
Net revenues in our North America operating segment increased $659.3 million to $3,455.7 million in 2015 from $2,796.4 million in 2014 primarily due to the items discussed above in the Consolidated Results of Operations. Net revenues in International increased $185.4 million to $454.2 million in 2015 from $268.8 million in 2014 primarily due to unit sales growth in our EMEA and Asia-Pacific operating segments. Net revenues in our Connected Fitness operating segment increased $34.2
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million to $53.4 million in 2015 from $19.2 million in 2014 primarily due to revenues generated from our two Connected Fitness acquisitions in 2015 and growth in our existing Connected Fitness business.
Operating income (loss) by segment is summarized below:
Year Ended December 31, | |||||||||||||||
(In thousands) | 2015 | 2014 | $ Change | % Change | |||||||||||
North America | $ | 460,961 | $ | 379,814 | $ | 81,147 | 21.4 | % | |||||||
International | 8,887 | (5,190 | ) | 14,077 | 271.2 | ||||||||||
Connected Fitness | (61,301 | ) | (20,669 | ) | (40,632 | ) | (196.6 | ) | |||||||
Total operating income | $ | 408,547 | $ | 353,955 | $ | 54,592 | 15.4 | % | |||||||
Operating income in our North America operating segment increased $81.2 million to $461.0 million in 2015 from $379.8 million in 2014 primarily due to the items discussed above in the Consolidated Results of Operations. Operating income in international increased $14.1 million to $8.9 million in 2015 from an operating loss of $5.2 million in 2014 primarily due to sales growth in our EMEA and Asia-Pacific operating segments. Operating loss in our Connected Fitness segment increased $40.6 million to $61.3 million in 2015 from $20.7 million in 2014 primarily due to investments to support growth in our Connected Fitness business, including the impact of our two Connected Fitness acquisitions in 2015. These acquisitions contributed $23.6 million to the operating loss for the Connected Fitness segment in 2015.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Net revenues by segment are summarized below:
Year Ended December 31, | |||||||||||||||
(In thousands) | 2014 | 2013 | $ Change | % Change | |||||||||||
North America | $ | 2,796,374 | $ | 2,193,739 | $ | 602,635 | 27.5 | % | |||||||
International | 268,771 | 137,244 | 131,527 | 95.8 | |||||||||||
Connected Fitness | 19,225 | 1,068 | 18,157 | 1,700.1 | |||||||||||
Total net revenues | $ | 3,084,370 | $ | 2,332,051 | $ | 752,319 | 32.3 | % | |||||||
Net revenues in our North America operating segment increased $602.7 million to $2,796.4 million in 2014 from $2,193.7 million in 2013 primarily due to the items discussed above in the Consolidated Results of Operations. Net revenues in international increased $131.6 million to $268.8 million in 2014 from $137.2 million in 2013 primarily due to sales growth in our Asia-Pacific and Latin America operating segments. Net revenues in our Connected Fitness operating segment increased $18.1 million to $19.2 million in 2014 from $1.1 million in 2013 primarily due to a full year of revenue from our Connected Fitness business in 2014 compared to one month in 2013.
Operating income (loss) by segment is summarized below:
Year Ended December 31, | |||||||||||||||
(In thousands) | 2014 | 2013 | $ Change | % Change | |||||||||||
North America | $ | 379,814 | $ | 271,338 | $ | 108,476 | 40.0 | % | |||||||
International | (5,190 | ) | (5,706 | ) | 516 | 9.0 | |||||||||
Connected Fitness | (20,669 | ) | (534 | ) | (20,135 | ) | (3,770.6 | ) | |||||||
Total operating income | $ | 353,955 | $ | 265,098 | $ | 88,857 | 33.5 | % | |||||||
Operating income in our North America operating segment increased $108.5 million to $379.8 million in 2014 from $271.3 million in 2013 primarily due to the items discussed above in the Consolidated Results of Operations. Operating loss in international decreased $0.5 million to $5.2 million in 2014 from $5.7 million in 2013 primarily due to sales growth in our EMEA and Asia-Pacific operating segments. Operating loss in our Connected Fitness segment increased $20.2 million to $20.7 million in 2014 from $0.5 million in 2013.
Seasonality
Historically, we have recognized a majority of our net revenues and a significant portion of our income from operations in the last two quarters of the year, driven primarily by increased sales volume of our products during the fall selling season, including our higher priced cold weather products, along with a larger proportion of higher margin direct to consumer sales.
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The level of our working capital generally reflects the seasonality and growth in our business. We generally expect inventory, accounts payable and certain accrued expenses to be higher in the second and third quarters in preparation for the fall selling season.
The following table sets forth certain financial information for the periods indicated. The data is prepared on the same basis as the audited consolidated financial statements included elsewhere in this Form 10-K. All recurring, necessary adjustments are reflected in the data below.
Quarter Ended (unaudited) | ||||||||||||||||||||||||
(In thousands) | 3/31/2014 | 6/30/2014 | 9/30/2014 | 12/31/2014 | Mar 31, 2015 | Jun 30, 2015 | Sep 30, 2015 | Dec 31, 2015 | ||||||||||||||||
Net revenues | $641,607 | $609,654 | $937,908 | $895,201 | $804,941 | $783,577 | $1,204,109 | $1,170,686 | ||||||||||||||||
Gross profit | 300,690 | 299,952 | 465,300 | 446,264 | 377,664 | 379,053 | 587,160 | 561,670 | ||||||||||||||||
Marketing SG&A expenses | 87,977 | 70,854 | 99,756 | 74,462 | 107,632 | 89,553 | 128,467 | 92,154 | ||||||||||||||||
Other SG&A expenses | 185,857 | 194,404 | 219,438 | 225,503 | 242,365 | 257,599 | 287,296 | 291,933 | ||||||||||||||||
Income from operations | 26,856 | 34,694 | 146,106 | 146,299 | 27,667 | 31,901 | 171,397 | 177,582 | ||||||||||||||||
(As a percentage of annual totals) | ||||||||||||||||||||||||
Net revenues | 20.8 | % | 19.8 | % | 30.4 | % | 29.0 | % | 20.3 | % | 19.8 | % | 30.4 | % | 29.5 | % | ||||||||
Gross profit | 19.9 | % | 19.8 | % | 30.8 | % | 29.5 | % | 19.8 | % | 19.9 | % | 30.8 | % | 29.5 | % | ||||||||
Marketing SG&A expenses | 26.4 | % | 21.3 | % | 29.9 | % | 22.4 | % | 25.8 | % | 21.4 | % | 30.7 | % | 22.1 | % | ||||||||
Other SG&A expenses | 22.5 | % | 23.6 | % | 26.6 | % | 27.3 | % | 22.5 | % | 23.9 | % | 26.6 | % | 27.1 | % | ||||||||
Income from operations | 7.6 | % | 9.8 | % | 41.3 | % | 41.3 | % | 6.8 | % | 7.8 | % | 42.0 | % | 43.5 | % | ||||||||
Financial Position, Capital Resources and Liquidity
Our cash requirements have principally been for working capital and capital expenditures. We fund our working capital, primarily inventory, and capital investments from cash flows from operating activities, cash and cash equivalents on hand and borrowings available under our credit and long term debt facilities. Our working capital requirements generally reflect the seasonality and growth in our business as we recognize the majority of our net revenues in the back half of the year. Our capital investments have included expanding our in-store fixture and branded concept shop program, improvements and expansion of our distribution and corporate facilities to support our growth, leasehold improvements to our new brand and factory house stores, and investment and improvements in information technology systems.
Our inventory strategy is focused on continuing to meet consumer demand while improving our inventory efficiency over the long term by putting systems and processes in place to improve our inventory management. These systems and processes are designed to improve our forecasting and supply planning capabilities. In addition to systems and processes, key areas of focus that we believe will enhance inventory performance are added discipline around the purchasing of product, production lead time reduction, and better planning and execution in selling of excess inventory through our factory house stores and other liquidation channels.
We believe our cash and cash equivalents on hand, cash from operations and borrowings available to us under our credit agreement and other financing instruments are adequate to meet our liquidity needs and capital expenditure requirements for at least the next twelve months. Although we believe we have adequate sources of liquidity over the long term, an economic recession or a slow recovery could adversely affect our business and liquidity (refer to the “Risk Factors” section included in Item 1A). In addition, instability in or tightening of the capital markets could adversely affect our ability to obtain additional capital to grow our business on terms acceptable to us or at all.
At December 31, 2015, $48.5 million, or approximately 37.4%, of our cash was held by our foreign subsidiaries where a repatriation of those funds to the United States would likely result in an additional tax expense. However, based on the capital and liquidity needs of our foreign operations, as well as the status of current tax law, we intend to indefinitely reinvest these funds outside the United States. In addition, our United States operations do not require the repatriation of these funds to meet our currently projected liquidity needs. Should we require additional capital in the United States, we may elect to repatriate indefinitely reinvested foreign funds or raise capital in the United States. If we were to repatriate indefinitely reinvested foreign funds, we would be required to accrue and pay additional U.S. taxes less applicable foreign tax credits. Determining the tax liability that would arise if these earnings were repatriated is not practical.
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Cash Flows
The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods presented:
Year Ended December 31, | ||||||||||||
(In thousands) | 2015 | 2014 | 2013 | |||||||||
Net cash provided by (used in): | ||||||||||||
Operating activities | $ | (44,104 | ) | $ | 219,033 | $ | 120,070 | |||||
Investing activities | (847,475 | ) | (152,312 | ) | (238,102 | ) | ||||||
Financing activities | 440,078 | 182,306 | 126,795 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | (11,822 | ) | (3,341 | ) | (3,115 | ) | ||||||
Net increase in cash and cash equivalents | $ | (463,323 | ) | $ | 245,686 | $ | 5,648 | |||||
Operating Activities
Operating activities consist primarily of net income adjusted for certain non-cash items. Adjustments to net income for non-cash items include depreciation and amortization, unrealized foreign currency exchange rate gains and losses, losses on disposals of property and equipment, stock-based compensation, deferred income taxes and changes in reserves and allowances. In addition, operating cash flows include the effect of changes in operating assets and liabilities, principally inventories, accounts receivable, income taxes payable and receivable, prepaid expenses and other assets, accounts payable and accrued expenses.
Cash flows used in operating activities decreased $263.1 million to $44.1 million in 2015 from $219.0 million of cash provided by operating activities in 2014. The decrease in cash from operating activities was due to decreased net cash flows from operating assets and liabilities of $370.1 million, partially offset by adjustments to net income for non-cash items, which increased $82.5 million, and an increase in net income of $24.5 million year over year. The decrease in cash outflows related to changes in operating assets and liabilities period over period was primarily driven by the following:
• | an increase in inventory investments of $193.9 million primarily due to early deliveries of product to meet key seasonal floor set dates, as well as strategic investments in auto-replenishment products. |
• | a larger increase in accounts receivable of $90.8 million in 2015 as compared to 2014, primarily due to the timing of shipments. |
Adjustments to net income for non-cash items increased in 2015 as compared to 2014 primarily due to higher depreciation and amortization expense in 2015 as compared to 2014 related to the expansion of our distribution and corporate facilities as well as our two Connected Fitness acquisitions.
Cash provided by operating activities increased $98.9 million to $219.0 million in 2014 from $120.1 million in 2013. The increase in cash provided by operating activities was due to adjustments to net income for non-cash items which increased $57.5 million and an increase in net income of $45.7 million, partially offset by decreased net cash flows from operating assets and liabilities of $4.3 million year over year. The decrease in net cash flows related to changes in operating assets and liabilities period over period was primarily driven by the following:
• | a decrease in inventory investments of $72.2 million due primarily to early deliveries of product and incremental inventory investments in the prior year |
• | a larger increase in accounts receivable of $65.1 million in 2014 as compared to 2013, primarily due to a higher proportion of sales to our international customers with longer payment terms compared to the prior year. |
Adjustments to net income for non-cash items increased in 2014 as compared to 2013 primarily due to an increase in stock-based compensation and higher depreciation and amortization in 2014 as compared to 2013.
Investing Activities
Cash used in investing activities increased $695.2 million to $847.5 million in 2015 from $152.3 million in 2014, primarily due to our Connected Fitness acquisitions of MyFitnessPal and Endomondo during the first quarter of 2015 and increased capital expenditures to improve and expand our corporate headquarters and invest in our new and expanding SAP platform in 2015.
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Cash used in investing activities decreased $85.8 million to $152.3 million in 2014 from $238.1 million in 2013. This decrease was primarily related to our Connected Fitness acquisition of MapMyFitness in the prior year, partially offset by increased capital expenditures to support international expansion and our brand and factory house strategies in 2014.
Total capital expenditures were $325.5 million, $145.4 million and $91.6 million in 2015, 2014 and 2013, respectively. Capital expenditures for 2016 are expected to be in the range of $450.0 million to $475.0 million, comprised primarily of investments in the expansion of our corporate headquarters and our new and expanding SAP platform, along with retail store build outs and fixtures.
Financing Activities
Cash provided by financing activities increased $257.8 million to $440.1 million in 2015 from $182.3 million in 2014. This increase was primarily due to our amended credit agreement that provided an additional $650.0 million in term loan and revolving credit facility proceeds in 2015 offset by payments of $261.3 million.
Cash provided by financing activities increased $55.5 million to $182.3 million in 2014 from $126.8 million in 2013. This increase was primarily due to $150.0 million of net borrowings under our credit facility in 2014, as compared to $100.0 million of borrowings under our revolving credit facility in 2013.
Credit Facility
In May 2014, we entered into a new unsecured $650.0 million credit agreement that provided for both revolving credit facility borrowings and term loan borrowings and had a term of five years through May 2019, with permitted extensions under certain circumstances. In March 2015, we amended the credit agreement to add an additional $150.0 million of term loan borrowings, resulting in aggregate term loan borrowings of $350.0 million, and an increase in revolving credit facility commitments to $800.0 million. As of December 31, 2015, we had $275.0 million of revolving borrowings outstanding and $525.0 million of remaining availability under the revolving credit facility.
In January 2016, we further amended our credit agreement to increase revolving credit facility commitments from $800.0 million to $1.25 billion. This amendment also extended the term of the revolving credit facility and the remaining outstanding term loans under the credit agreement from May 2019 to January 2021. Simultaneously with entering into the amendment, we borrowed $138.8 million under the revolving credit facility to repay in full the balance of the $150.0 million term loan originally borrowed in March 2015. After giving effect to this amendment and the related repayment, as well as additional borrowings under the revolving credit facility in February 2016, we have $565.0 million of revolving borrowings outstanding and $685.0 million of remaining availability under our revolving credit facility. At our request and the lenders' consent, revolving and/or term loan borrowings may be increased by up to $300.0 million in aggregate, subject to certain conditions as set forth in the credit agreement, as amended. Incremental borrowings are uncommitted and the availability thereof will depend on market conditions at the time we seek to incur such borrowings.
Borrowings under the revolving credit facility may be made in U.S. Dollars, Euros, Pounds Sterling, Japanese Yen and
Canadian Dollars. Up to $50.0 million of the facility may be used for the issuance of letters of credit and up to $50.0 million of the facility may be used for the issuance of swingline loans. There were $1.0 million of letters of credit and no swingline loans outstanding as of December 31, 2015.
The credit agreement contains negative covenants that, subject to significant exceptions, limit our ability to, among other things, incur additional indebtedness, make restricted payments, pledge our assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. We are also required to maintain a ratio of consolidated EBITDA, as defined in the credit agreement, to consolidated interest expense of not less than 3.50 to 1.00 and we are not permitted to allow the ratio of consolidated total indebtedness to consolidated EBITDA to be greater than 3.25 to 1.00. As of December 31, 2015, we were in compliance with these ratios. In addition, the credit agreement contains events of default that are customary for a facility of this nature, and includes a cross default provision whereby an event of default under other material indebtedness, as defined in the credit agreement, will be considered an event of default under the credit agreement.
Borrowings under the credit agreement bear interest at a rate per annum equal to, at our option, either (a) an alternate base rate, or (b) the adjusted LIBOR rate, plus in each case an applicable margin. The applicable margin for loans will be adjusted by reference to the Pricing Grid based on the consolidated leverage ratio and ranges between 1.00% to 1.25% for adjusted LIBOR rate loans and 0.00% to 0.25% for alternate base rate loans. The weighted average interest rates under the outstanding term loans ranged from 1.29% to 1.32% and was 1.16% during the years ended December 31, 2015 and 2014, respectively. The weighted average interest rate under the revolving credit facility was 1.33% during the year ended December 31, 2015. We pay a commitment fee on the average daily unused amount of the revolving credit facility and certain fees with
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respect to letters of credit. As of December 31, 2015, the commitment fee was 15.0 basis points. We incurred and capitalized $2.9 million million in deferred financing costs in connection with the credit facility as of December 31, 2015.
Other Long Term Debt
We have long term debt agreements with various lenders to finance the acquisition or lease of qualifying capital investments. Loans under these agreements are collateralized by a first lien on the related assets acquired. At December 31, 2014 and 2013, the outstanding principal balance under these agreements was $2.0 million and $4.9 million, respectively. As of December 31, 2015 there was no outstanding principal balance under these agreements. Currently, advances under these agreements bear interest rates which are fixed at the time of each advance. The weighted average interest rates on outstanding borrowings were 3.3%, 3.1% and 3.3% for the years ended December 31, 2015, 2014 and 2013, respectively.
In December 2012, we entered into a $50.0 million recourse loan collateralized by the land, buildings and tenant improvements comprising our corporate headquarters. The loan has a seven year term and maturity date of December 2019. The loan bears interest at one month LIBOR plus a margin of 1.50%, and allows for prepayment without penalty. The loan includes covenants and events of default substantially consistent with our credit agreement discussed above. The loan also requires prior approval of the lender for certain matters related to the property, including transfers of any interest in the property. As of December 31, 2015 and 2014, the outstanding balance on the loan was $44.0 million and $46.0 million, respectively. The weighted average interest rate on the loan was 1.7% for the years ended December 31, 2015, 2014 and 2013.
Interest expense, net was $14.6 million, $5.3 million and $2.9 million for the years ended December 31, 2015, 2014 and 2013, respectively. Interest expense includes the amortization of deferred financing costs and interest expense under the credit and long term debt facilities.
We monitor the financial health and stability of our 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.
Acquisitions
Endomondo
On January 5, 2015, we acquired 100% of the outstanding equity of Endomondo, a Denmark-based digital connected fitness company, to expand the Under Armour Connected Fitness community. The purchase price was $85.0 million,
adjusted for working capital.
We recognized $0.6 million and $0.8 million in acquisition related costs that were expensed during the three months ended March 31, 2015 and December 31, 2014, respectively. These costs are included in the consolidated statements of income in the line item entitled “Selling, general and administrative expenses.”
MyFitnessPal
On March 17, 2015, we acquired 100% of the outstanding equity of MyFitnessPal, or "MFP", a digital nutrition and connected fitness company, to expand the Under Armour Connected Fitness community. The final adjusted transaction value totaled $474.0 million. The total consideration of $463.9 million was adjusted to reflect the accelerated vesting of certain share awards of MFP, which are not conditioned upon continued employment, and transaction costs borne by the selling shareholders. The acquisition was funded with $400.0 million of increased term loan borrowings and a draw on the revolving credit facility, with the remaining amount funded by cash on hand.
We recognized $5.7 million of acquisition related costs that were expensed during the three months ended March 31, 2015. These costs are included in the consolidated statement of income in the line item entitled “Selling, general and administrative expenses.”
Contractual Commitments and Contingencies
We lease warehouse space, office facilities, space for our brand and factory house stores and certain equipment under non-cancelable operating and capital leases. The leases expire at various dates through 2028, excluding extensions at our option, and contain various provisions for rental adjustments. In addition, this table includes executed lease agreements for brand and factory house stores that we did not yet occupy as of December 31, 2015. The operating leases generally contain renewal provisions for varying periods of time. Our significant contractual obligations and commitments as of December 31, 2015 as well as significant agreements entered into during the period after December 31, 2015 through the date of this report are summarized in the following table:
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Payments Due by Period | ||||||||||||||||||||
(in thousands) | Total | Less Than 1 Year | 1 to 3 Years | 3 to 5 Years | More Than 5 Years | |||||||||||||||
Contractual obligations | ||||||||||||||||||||
Long term debt obligations (1) | $ | 714,283 | $ | 54,922 | $ | 110,845 | $ | 548,516 | $ | — | ||||||||||
Lease obligations (2) | 717,074 | 84,620 | 166,478 | 151,140 | 314,836 | |||||||||||||||
Product purchase obligations (3) | 1,537,915 | 1,537,915 | — | — | — | |||||||||||||||
Sponsorships and other (4) | 858,543 | 126,488 | 276,198 | 166,483 | 289,374 | |||||||||||||||
Total | $ | 3,827,815 | $ | 1,803,945 | $ | 553,521 | $ | 866,139 | $ | 604,210 | ||||||||||
(1) | Includes estimated interest payments based on applicable fixed and currently effective floating interest rates as of December 31, 2015, timing of scheduled payments, and the term of the debt obligations. This does not reflect the amendment to our credit facility in January 2016. |
(2) | Includes the minimum payments for lease obligations. The lease obligations do not include any contingent rent expense we may incur at our brand and factory house stores based on future sales above a specified minimum or payments made for maintenance, insurance and real estate taxes. Contingent rent expense was $11.0 million for the year ended December 31, 2015. |
(3) | We generally place orders with our manufacturers at least three to four months in advance of expected future sales. The amounts listed for product purchase obligations primarily represent our open production purchase orders with our manufacturers for our apparel, footwear and accessories, including expected inbound freight, duties and other costs. These open purchase orders specify fixed or minimum quantities of products at determinable prices. The product purchase obligations also includes fabric commitments with our suppliers, which secure a portion of our material needs for future seasons. The reported amounts exclude product purchase liabilities included in accounts payable as of December 31, 2015. |
(4) | Includes sponsorships with professional teams, professional leagues, colleges and universities, individual athletes, athletic events and other marketing commitments in order to promote our brand. Some of these sponsorship agreements provide for additional performance incentives and product supply obligations. It is not possible to determine how much we will spend on product supply obligations on an annual basis as contracts generally do not stipulate specific cash amounts to be spent on products. The amount of product provided to these sponsorships depends on many factors including general playing conditions, the number of sporting events in which they participate and our decisions regarding product and marketing initiatives. In addition, it is not possible to determine the performance incentive amounts we may be required to pay under these agreements as they are primarily subject to certain performance based and other variables. The amounts listed above are the fixed minimum amounts required to be paid under these sponsorship agreements. Additionally, these amounts include minimum guaranteed royalty payments to endorsers and licensors based upon a predetermined percent of sales of particular products. |
The table above excludes a liability of $46.9 million for uncertain tax positions, including the related interest and penalties, recorded in accordance with applicable accounting guidance, as we are unable to reasonably estimate the timing of settlement. Refer to Note 10 to the Consolidated Financial Statements for a further discussion of our uncertain tax positions.
Off-Balance Sheet Arrangements
In connection with various contracts and agreements, we have agreed to indemnify counterparties against certain third party claims relating to the infringement of intellectual property rights and other items. Generally, such indemnification obligations do not apply in situations in which our counterparties are grossly negligent, engage in willful misconduct, or act in bad faith. Based on our historical experience and the estimated probability of future loss, we have determined the fair value of such indemnifications is not material to our financial position or results of operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. To prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities. Actual results could be significantly different from these estimates. We believe the following discussion addresses the critical accounting policies that are necessary to understand and evaluate our reported financial results.
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Our significant accounting policies are described in Note 2 of the audited consolidated financial statements. The SEC suggests companies provide additional disclosure on those accounting policies considered most critical. The SEC considers an accounting policy to be critical if it is important to our financial condition and results of operations and requires significant judgments and estimates on the part of management in its application. Our estimates are often based on complex judgments, probabilities and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. For a complete discussion of our critical accounting policies, see the “Critical Accounting Policies” section of the Management's Discussion and Analysis. There were no significant changes to our critical accounting policies during the year ended December 31, 2015.
Revenue Recognition
Net revenues consist of both net sales and license and other revenues. Net sales are recognized upon transfer of ownership, including passage of title to the customer and transfer of risk of loss related to those goods. Transfer of title and risk of loss are 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 take place at the point of sale, for example at our brand and factory house stores. We may also ship product directly from our supplier to the customer and recognize revenue when the product is delivered to and accepted by the customer. License revenues are primarily recognized based upon shipment of licensed products sold by our licensees. Sales taxes imposed on our 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.
We record reductions to revenue for estimated customer returns, allowances, markdowns and discounts. We base our 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 us. The actual amount of customer returns and allowances, which is inherently uncertain, may differ from our estimates. If we determine that actual or expected returns or allowances are significantly higher or lower than the reserves we established, we would record a reduction or increase, as appropriate, to net sales in the period in which we make 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 recorded as an offset to accounts receivable as settlements are made through offsets to outstanding customer invoices. As of December 31, 2015 and 2014, there were $94.5 million and $68.9 million, respectively, in reserves for customer returns, allowances, markdowns and discounts.
Allowance for Doubtful Accounts
We make ongoing estimates relating to the collectability of accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the reserve, we consider historical levels of credit losses and significant economic developments within the retail environment that could impact the ability of our customers to pay outstanding balances and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Because we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from estimates. If the financial condition of customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event we determine a smaller or larger reserve is appropriate, we would record a benefit or charge to selling, general and administrative expense in the period in which such a determination was made. As of December 31, 2015 and 2014, the allowance for doubtful accounts was $5.9 million and $3.7 million, respectively.
Subsequent to December 31, 2015, we became aware of the deteriorating financial condition of one of our wholesale customers, The Sports Authority. Our recorded reserve as of year-end materially reflects our best estimate, based on currently available information, of the ultimate recoverability of amounts due from this customer at December 31, 2015. As of December 31, 2015, the amount of this receivable totaled $32.5 million. However, we do not currently believe that the exposure to our receivables as of December 31, 2015 is materially impacted by the developments related to The Sports Authority. If the financial condition of this customer continues to deteriorate, this could result in us recording additional reserves against our receivables balance. See "Risk Factors - If the financial condition of our customers declines, our financial condition and results of operations could be adversely impacted."
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Inventory Valuation and Reserves
We value our inventory using the first-in, first-out method of cost determination. Market value is estimated based upon assumptions made about future demand and retail market conditions. If we determine that the estimated market value of our inventory is less than the carrying value of such inventory, we record a charge to cost of goods sold to reflect the lower of cost or market. If actual market conditions are less favorable than those we projected, further adjustments may be required that would increase the cost of goods sold in the period in which such a determination was made.
Goodwill, Intangible Assets and Long-Lived Assets
Goodwill and intangible assets are recorded at their estimated fair values at the date of acquisition and are allocated to the reporting units that are expected to receive the related benefits. Goodwill and indefinite lived intangible assets are not amortized and are required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be impaired. In conducting an annual impairment test, we first review qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that is the case, or if goodwill is allocated to a reporting unit for the first time, we perform the two-step goodwill impairment test. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. We calculate fair value using the discounted cash flows model, which indicates the fair value of the reporting unit based on the present value of the cash flows that we expect the reporting unit to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital, long-term rate of growth and profitability of the reporting unit’s business, and working capital effects. If the carrying amount exceeds its fair value, the second step will be performed. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. We perform our annual impairment tests in the fourth quarter of each fiscal year. As of December 31, 2015, no impairment of goodwill was identified, and no reporting unit was at risk of failing step one of the impairment test.
We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be recoverable. These factors may include a significant deterioration of operating results, changes in business plans, or changes in anticipated cash flows. When factors indicate that an asset should be evaluated for possible impairment, we review long-lived assets to assess recoverability from future operations using undiscounted cash flows. If future undiscounted cash flows are less than the carrying value, an impairment is recognized in earnings to the extent that the carrying value exceeds fair value.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.
Assessing whether deferred tax assets are realizable requires significant judgment. We consider all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent we believe it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against our deferred tax assets, which increase income tax expense in the period when such a determination is made.
Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate. We recognize accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.
Stock-Based Compensation
We account for stock-based compensation in accordance with accounting guidance that requires all stock-based compensation awards granted to employees and directors to be measured at fair value and recognized as an expense in the financial statements. As of December 31, 2015, we had $46.3 million of unrecognized compensation expense expected to be recognized over a weighted average period of 1.1 years. This unrecognized compensation expense does not include any expense related to performance-based restricted stock units and stock options for which the performance targets have not been achieved as of December 31, 2015.
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The assumptions used in calculating the fair value of stock-based compensation awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. In addition, compensation expense for performance-based awards is recorded over the related service period when achievement of the performance targets are deemed probable, which requires management judgment. For example, the achievement of certain operating income targets related to the performance-based restricted stock units and stock options granted in 2015 were not deemed probable as of December 31, 2015. Additional stock-based compensation of up to $3.6 million would have been recorded in 2015 for these performance-based restricted stock units and stock options had the full achievement of all operating targets been deemed probable. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. Refer to Note 2 and Note 12 to the Consolidated Financial Statements for a further discussion on stock-based compensation.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update which supersedes the most current requirements. The new revenue recognition standard requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services. This guidance was previously effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption not permitted. In August 2015, the FASB issued a one-year deferral of the effective date of the new revenue recognition standard. The new standard will now be effective for annual and interim periods beginning after December 15, 2017 with early adoption as of the original effective date permitted. We are currently evaluating this standard to determine the impact of its adoption on our consolidated financial statements.
In July 2015, the FASB issued an Accounting Standard Update which simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. This guidance is effective for fiscal years beginning after December 15, 2016 and for interim periods therein. We do not expect the adoption of this standard to have a significant impact on our consolidated financial statements.
In September 2015, the FASB issued an Accounting Standards Update which requires the acquiring company in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquiring company record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of a change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods therein. We do not expect the adoption of this standard to have a significant impact on our consolidated financial statements.
Recently Adopted Accounting Standards
In January 2015, the FASB issued an Accounting Standards Update which eliminates from GAAP the concept of extraordinary items and the need to separately classify, present, and disclose extraordinary events and transactions. This guidance is effective for annual and interim reporting periods beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this pronouncement did not have a material impact on our consolidated financial statements.
In November 2015, the FASB issued an Accounting Standards Update which requires deferred tax liabilities and assets to be classified as non-current in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Earlier adoption is permitted for all entities as of the beginning of an interim or annual reporting period. This amendment may be applied either prospectively or retrospectively to all periods presented. We adopted the provisions of this guidance prospectively in the fourth quarter of 2015, and did not retrospectively adjust the prior periods. Had we adopted this guidance retrospectively, $33.5 million would have been reclassified from deferred income taxes-current to deferred income taxes-long term for the year ended December 31, 2014. The adoption of this guidance will simplify the presentation of deferred income taxes and reduce complexity without decreasing the usefulness of information provided to users of financial statements. The adoption of this pronouncement did not have a significant impact on our financial position, results of operations and cash flows.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Foreign Currency Risk
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We currently generate a majority of our consolidated net revenues in the United States, and the reporting currency for our consolidated financial statements is the U.S. dollar. As our net revenues and expenses generated outside of the United States increase, our results of operations could be adversely impacted by changes in foreign currency exchange rates. For example, as we recognize foreign revenues in local foreign currencies and if the U.S. dollar strengthens, it could have a negative impact on our foreign revenues upon translation of those results into the U.S. dollar upon consolidation of our financial statements. In addition, we are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates on transactions generated by our foreign subsidiaries in currencies other than their local currencies. These gains and losses are primarily driven by intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity. These exposures are included in other expense, net on the consolidated statements of income.
From time to time, we may elect to use foreign currency forward contracts to reduce the risk from exchange rate fluctuations primarily on intercompany transactions and projected inventory purchases for our international subsidiaries. As we expand our international business, we anticipate expanding our current hedging program to include additional currency pairs and instruments. We do not enter into derivative financial instruments for speculative or trading purposes.
As of December 31, 2015, the aggregate notional value of our outstanding foreign currency forward contracts was $468.1 million, which was comprised of Canadian Dollar/U.S. Dollar, Euro/U.S. Dollar, Yen/Euro, Mexican Peso/Euro and Pound Sterling/Euro currency pairs with contract maturities of one to eleven months. The foreign currency forward contracts outstanding as of December 31, 2015 have weighted average contractual forward foreign currency exchange rates of 1.38 CAD per $1.00, €0.91 per $1.00, 135.83 JPY per €1.00, 18.82 MXN per €1.00 and £0.74 per €1.00. The majority of our foreign currency forward contracts are not designated as cash flow hedges, and accordingly, changes in their fair value are recorded in earnings. During 2014, we began entering into foreign currency forward contracts designated as cash flow hedges. For foreign currency forward contracts designated as cash flow hedges, changes in fair value, excluding any ineffective portion, is recorded in other comprehensive income until net income is affected by the variability in cash flows of the hedged transaction. The effective portion is generally released to net income after the maturity of the related derivative and is classified in the same manner as the underlying exposure. During the years ended December 31, 2015 and 2014, we reclassified $3.5 million and $0.4 million from other comprehensive income to cost of goods sold related to foreign currency forward contracts designated as cash flow hedges, respectively. The fair values of the Company’s foreign currency forward contracts were assets of $3.8 million and $0.8 million as of December 31, 2015 and 2014, respectively, and were included in prepaid expenses and other current assets on the consolidated balance sheet. Refer to Note 9 to the Consolidated Financial Statements for a discussion of the fair value measurements. Included in other expense, net were the following amounts related to changes in foreign currency exchange rates and derivative foreign currency forward contracts:
(In thousands) | Year Ended December 31, | |||||||||||
2015 | 2014 | 2013 | ||||||||||
Unrealized foreign currency exchange rate gains (losses) | $ | (33,359 | ) | $ | (11,739 | ) | $ | (1,905 | ) | |||
Realized foreign currency exchange rate gains (losses) | 7,643 | 2,247 | 477 | |||||||||
Unrealized derivative gains (losses) | 388 | 1 | 13 | |||||||||
Realized derivative gains (losses) | 16,404 | 3,081 | 243 | |||||||||
We enter into foreign currency forward contracts with major financial institutions with investment grade credit ratings and are exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the foreign currency forward contracts. However, we monitor the credit quality of these financial institutions and consider the risk of counterparty default to be minimal. Although we have entered into foreign currency forward contracts to minimize some of the impact of foreign currency exchange rate fluctuations on future cash flows, we cannot be assured that foreign currency exchange rate fluctuations will not have a material adverse impact on our financial condition and results of operations.
Interest Rate Risk
In order to maintain liquidity and fund business operations, we enter into long term debt arrangements with various lenders which bear a range of fixed and variable rates of interest. The nature and amount of our long-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. We may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations. We utilize interest rate swap contracts to convert a portion of variable rate debt to fixed rate debt. The contracts pay fixed and receive variable rates of interest. The interest rate swap contracts are accounted for as cash flow hedges and accordingly, the effective portion of the changes in fair value are recorded in other comprehensive income and reclassified into interest expense over the life of the underlying debt obligation.
As of December 31, 2015, the aggregate notional value of our outstanding interest rate swap contracts was $170.7 million. During the years ended December 31, 2015 and 2014, we recorded a $2.7 million and $1.7 million increase in interest expense, respectively, representing the effective portion of the contracts reclassified from accumulated other comprehensive
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income. The fair value of the interest rate swap contracts was a liability of $1.5 million and $0.6 million as of December 31, 2015 and 2014, respectively, and was included in other long term liabilities on the consolidated balance sheet.
Credit Risk
We are exposed to credit risk primarily on our accounts receivable. We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations. We believe that our exposure to concentrations of credit risk with respect to trade receivables is largely mitigated by our customer base. We believe that our allowance for doubtful accounts is sufficient to cover customer credit risks as of December 31, 2015. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates - Allowance for Doubtful Accounts."
Inflation
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations in recent periods, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Report of Management on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on our evaluation, we have concluded that our internal control over financial reporting was effective as of December 31, 2015.
The effectiveness of our internal control over financial reporting as of December 31, 2015, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
/s/ KEVIN A. PLANK | Chairman of the Board of Directors and Chief Executive Officer | |
Kevin A. Plank | ||
/s/ LAWRENCE P. MOLLOY | Chief Financial Officer | |
Lawrence P. Molloy | ||
Dated: February 19, 2016
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Under Armour, Inc.
In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Under Armour, Inc. and its subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for the classification of deferred income tax balances in 2015.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
February 19, 2016
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Under Armour, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
December 31, 2015 | December 31, 2014 | ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 129,852 | $ | 593,175 | |||
Accounts receivable, net | 433,638 | 279,835 | |||||
Inventories | 783,031 | 536,714 | |||||
Prepaid expenses and other current assets | 152,242 | 87,177 | |||||
Deferred income taxes | — | 52,498 | |||||
Total current assets | 1,498,763 | 1,549,399 | |||||
Property and equipment, net | 538,531 | 305,564 | |||||
Goodwill | 585,181 | 123,256 | |||||
Intangible assets, net | 75,686 | 26,230 | |||||
Deferred income taxes | 92,157 | 33,570 | |||||
Other long term assets | 78,582 | 57,064 | |||||
Total assets | $ | 2,868,900 | $ | 2,095,083 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities | |||||||
Accounts payable | $ | 200,460 | $ | 210,432 | |||
Accrued expenses | 192,935 | 147,681 | |||||
Current maturities of long term debt | 42,000 | 28,951 | |||||
Other current liabilities | 43,415 | 34,563 | |||||
Total current liabilities | 478,810 | 421,627 | |||||
Long term debt, net of current maturities | 352,000 | 255,250 | |||||
Revolving credit facility, long term | 275,000 | — | |||||
Other long term liabilities | 94,868 | 67,906 | |||||
Total liabilities | 1,200,678 | 744,783 | |||||
Commitments and contingencies (see Note 7) | |||||||
Stockholders’ equity | |||||||
Class A Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of December 31, 2015 and 2014; 181,646,468 shares issued and outstanding as of December 31, 2015 and 177,295,988 shares issued and outstanding as of December 31, 2014. | 61 | 59 | |||||
Class B Convertible Common Stock, $0.0003 1/3 par value; 34,450,000 shares authorized, issued and outstanding as of December 31, 2015 and 36,600,000 shares authorized, issued and outstanding as of December 31, 2014. | 11 | 12 | |||||
Class C Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of December 31, 2015; 0 shares issued and outstanding as of December 31, 2015. | — | — | |||||
Additional paid-in capital | 636,630 | 508,350 | |||||
Retained earnings | 1,076,533 | 856,687 | |||||
Accumulated other comprehensive loss | (45,013 | ) | (14,808 | ) | |||
Total stockholders’ equity | 1,668,222 | 1,350,300 | |||||
Total liabilities and stockholders’ equity | $ | 2,868,900 | $ | 2,095,083 | |||
See accompanying notes.
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Under Armour, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
Year Ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Net revenues | $ | 3,963,313 | $ | 3,084,370 | $ | 2,332,051 | |||||
Cost of goods sold | 2,057,766 | 1,572,164 | 1,195,381 | ||||||||
Gross profit | 1,905,547 | 1,512,206 | 1,136,670 | ||||||||
Selling, general and administrative expenses | 1,497,000 | 1,158,251 | 871,572 | ||||||||
Income from operations | 408,547 | 353,955 | 265,098 | ||||||||
Interest expense, net | (14,628 | ) | (5,335 | ) | (2,933 | ) | |||||
Other expense, net | (7,234 | ) | (6,410 | ) | (1,172 | ) | |||||
Income before income taxes | 386,685 | 342,210 | 260,993 | ||||||||
Provision for income taxes | 154,112 | 134,168 | 98,663 | ||||||||
Net income | $ | 232,573 | $ | 208,042 | $ | 162,330 | |||||
Net income available per common share | |||||||||||
Basic | $ | 1.08 | $ | 0.98 | $ | 0.77 | |||||
Diluted | $ | 1.05 | $ | 0.95 | $ | 0.75 | |||||
Weighted average common shares outstanding | |||||||||||
Basic | 215,498 | 213,227 | 210,696 | ||||||||
Diluted | 220,868 | 219,380 | 215,958 | ||||||||
See accompanying notes.
45
Under Armour, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
Year Ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Net income | $ | 232,573 | $ | 208,042 | $ | 162,330 | |||||
Other comprehensive income (loss): | |||||||||||
Foreign currency translation adjustment | (31,816 | ) | (16,743 | ) | (897 | ) | |||||
Unrealized gain (loss) on cash flow hedge, net of tax of $415, $(408) and $505 for the years ended December 31, 2015, 2014 and 2013. | 1,611 | (259 | ) | 723 | |||||||
Total other comprehensive loss | (30,205 | ) | (17,002 | ) | (174 | ) | |||||
Comprehensive income | $ | 202,368 | $ | 191,040 | $ | 162,156 | |||||
See accompanying notes.
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Under Armour, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In thousands)
Class A Common Stock | Class B Convertible Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
Balance as of December 31, 2012 | 166,922 | $ | 56 | 42,600 | $ | 14 | $ | 321,303 | $ | 493,181 | $ | 2,368 | $ | 816,922 | |||||||||||||||
Exercise of stock options | 1,822 | — | — | — | 12,159 | — | — | 12,159 | |||||||||||||||||||||
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements | (47 | ) | — | — | — | — | (1,669 | ) | — | (1,669 | ) | ||||||||||||||||||
Issuance of Class A Common Stock, net of forfeitures | 332 | — | — | — | 3,439 | — | — | 3,439 | |||||||||||||||||||||
Class B Convertible Common Stock converted to Class A Common Stock | 2,600 | 1 | (2,600 | ) | (1 | ) | — | — | — | — | |||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 43,184 | — | — | 43,184 | |||||||||||||||||||||
Net excess tax benefits from stock-based compensation arrangements | — | — | — | — | 17,163 | — | — | 17,163 | |||||||||||||||||||||
Comprehensive income | — | — | — | — | — | 162,330 | (174 | ) | 162,156 | ||||||||||||||||||||
Balance as of December 31, 2013 | 171,629 | 57 | 40,000 | 13 | 397,248 | 653,842 | 2,194 | 1,053,354 | |||||||||||||||||||||
Exercise of stock options | 1,454 | 1 | — | — | 11,258 | — | — | 11,259 | |||||||||||||||||||||
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements | (95 | ) | — | — | — | — | (5,197 | ) | — | (5,197 | ) | ||||||||||||||||||
Issuance of Class A Common Stock, net of forfeitures | 908 | — | — | — | 12,067 | — | — | 12,067 | |||||||||||||||||||||
Class B Convertible Common Stock converted to Class A Common Stock | 3,400 | 1 | (3,400 | ) | (1 | ) | — | — | — | — | |||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 50,812 | — | — | 50,812 | |||||||||||||||||||||
Net excess tax benefits from stock-based compensation arrangements | — | — | — | — | 36,965 | — | — | 36,965 | |||||||||||||||||||||
Comprehensive income | — | — | — | — | — | 208,042 | (17,002 | ) | 191,040 | ||||||||||||||||||||
Balance as of December 31, 2014 | 177,296 | 59 | 36,600 | 12 | 508,350 | 856,687 | (14,808 | ) | 1,350,300 | ||||||||||||||||||||
Exercise of stock options | 360 | — | — | — | 2,852 | — | — | 2,852 | |||||||||||||||||||||
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements | (172 | ) | — | — | — | — | (12,727 | ) | — | (12,727 | ) | ||||||||||||||||||
Issuance of Class A Common Stock, net of forfeitures | 1,996 | 1 | — | — | 19,135 | — | — | 19,136 | |||||||||||||||||||||
Class B Convertible Common Stock converted to Class A Common Stock | 2,150 | 1 | (2,150 | ) | (1 | ) | — | — | — | — | |||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 60,376 | — | — | 60,376 | |||||||||||||||||||||
Net excess tax benefits from stock-based compensation arrangements | — | — | — | — | 45,917 | — | — | 45,917 | |||||||||||||||||||||
Comprehensive income (loss) | — | — | — | — | — | 232,573 | (30,205 | ) | 202,368 | ||||||||||||||||||||
Balance as of December 31, 2015 | 181,630 | $ | 61 | 34,450 | $ | 11 | $ | 636,630 | $ | 1,076,533 | $ | (45,013 | ) | $ | 1,668,222 | ||||||||||||||
See accompanying notes.
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Under Armour, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Cash flows from operating activities | |||||||||||
Net income | $ | 232,573 | $ | 208,042 | $ | 162,330 | |||||
Adjustments to reconcile net income to net cash used in operating activities | |||||||||||
Depreciation and amortization | 100,940 | 72,093 | 50,549 | ||||||||
Unrealized foreign currency exchange rate losses | 33,359 | 11,739 | 1,905 | ||||||||
Loss on disposal of property and equipment | 549 | 261 | 332 | ||||||||
Stock-based compensation | 60,376 | 50,812 | 43,184 | ||||||||
Deferred income taxes | (4,426 | ) | (17,584 | ) | (18,832 | ) | |||||
Changes in reserves and allowances | 40,391 | 31,350 | 13,945 | ||||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | |||||||||||
Accounts receivable | (191,876 | ) | (101,057 | ) | (35,960 | ) | |||||
Inventories | (278,524 | ) | (84,658 | ) | (156,900 | ) | |||||
Prepaid expenses and other assets | (76,476 | ) | (33,345 | ) | (19,049 | ) | |||||
Accounts payable | (22,583 | ) | 49,137 | 14,642 | |||||||
Accrued expenses and other liabilities | 64,126 | 28,856 | 56,481 | ||||||||
Income taxes payable and receivable | (2,533 | ) | 3,387 | 7,443 | |||||||
Net cash provided by (used in) operating activities | (44,104 | ) | 219,033 | 120,070 | |||||||
Cash flows from investing activities | |||||||||||
Purchases of property and equipment | (298,928 | ) | (140,528 | ) | (87,830 | ) | |||||
Purchase of businesses, net of cash acquired | (539,460 | ) | (10,924 | ) | (148,097 | ) | |||||
Purchases of available-for-sale securities | (103,144 | ) | — | — | |||||||
Sales of available-for-sale securities | 96,610 | — | — | ||||||||
Purchases of other assets | (2,553 | ) | (860 | ) | (475 | ) | |||||
Change in loans receivable | — | — | (1,700 | ) | |||||||
Net cash used in investing activities | (847,475 | ) | (152,312 | ) | (238,102 | ) | |||||
Cash flows from financing activities | |||||||||||
Proceeds from revolving credit facility | 500,000 | — | 100,000 | ||||||||
Payments on revolving credit facility | (225,000 | ) | (100,000 | ) | — | ||||||
Proceeds from term loan | 150,000 | 250,000 | — | ||||||||
Payments on term loan | (36,250 | ) | (13,750 | ) | — | ||||||
Payments on long term debt | (3,952 | ) | (4,972 | ) | (5,471 | ) | |||||
Excess tax benefits from stock-based compensation arrangements | 45,917 | 36,965 | 17,163 | ||||||||
Proceeds from exercise of stock options and other stock issuances | 10,310 | 15,776 | 15,103 | ||||||||
Payments of debt financing costs | (947 | ) | (1,713 | ) | — | ||||||
Net cash provided by financing activities | 440,078 | 182,306 | 126,795 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (11,822 | ) | (3,341 | ) | (3,115 | ) | |||||
Net increase (decrease) in cash and cash equivalents | (463,323 | ) | 245,686 | 5,648 | |||||||
Cash and cash equivalents | |||||||||||
Beginning of period | 593,175 | 347,489 | 341,841 | ||||||||
End of period | $ | 129,852 | $ | 593,175 | $ | 347,489 | |||||
Non-cash investing and financing activities | |||||||||||
Increase in accrual for property and equipment | $ | 17,758 | $ | 4,922 | $ | 3,786 | |||||
Non-cash acquisition of business | — | 11,233 | — | ||||||||
Property and equipment acquired under build-to-suit leases | 5,631 | — | — | ||||||||
Other supplemental information | |||||||||||
Cash paid for income taxes | 99,708 | 103,284 | 85,570 | ||||||||
Cash paid for interest, net of capitalized interest | 11,176 | 4,146 | 1,505 | ||||||||
See accompanying notes.
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Under Armour, Inc. and Subsidiaries
Notes to the Audited Consolidated Financial Statements
1. Description of the Business
Under Armour, Inc. is a developer, marketer and distributor of branded performance apparel, footwear and accessories. These products are sold worldwide and worn by athletes at all levels, from youth to professional on playing fields around the globe, as well as by consumers with active lifestyles. The Under Armour Connected FitnessTM platform powers the world's
largest digital health and fitness community. The Company uses this platform to engage its consumers and increase awareness
and sales of its products.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Under Armour, Inc. and its wholly owned subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated. The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.
On March 17, 2014, the Board of Directors declared a two-for-one stock split of the Company's Class A and Class B common stock, which was effected in the form of a 100% common stock dividend distributed on April 14, 2014. Stockholders' equity and all references to share and per share amounts in the accompanying consolidated financial statements have been retroactively adjusted to reflect the two-for-one stock split for all periods presented.
On January 5, 2015, the Company acquired 100% of the outstanding equity of Endomondo ApS (“Endomondo”), a Denmark-based digital connected fitness company. On March 17, 2015, the Company acquired 100% of the outstanding equity of MyFitnessPal, Inc. (“MFP”), a digital nutrition and connected fitness company. Both companies were acquired to expand the Under Armour Connected Fitness community. The purchase price allocation for each acquisition is reflected in the consolidated balance sheet as of December 31, 2015.
The Company identified a prior period error in the classification of available-for-sale securities (“AFS”) for the first and second quarters of 2015. The Company concluded that the error was not material to any of its previously issued financial statements. The Company included purchases and sales of AFS for the first six months of 2015 of $41.5 million and $19.4 million, respectively, in its cash flows from investing activities for the six months ended June 30, 2015. Additionally, the Company intends to revise the affected periods when they are presented on a comparable basis to reflect the correct accounting. The revision will result in a reclassification from "Cash and cash equivalents" to "Prepaid expenses and other current assets" on the 2015 first and second quarter balance sheets of $7.1 million and $22.1 million, respectively. Correspondingly, the revision will result in the presentation of purchases and sales of AFS for the three months ended March 31, 2015 of $10.4 million and $3.3 million,respectively, in addition to the six months 2015 cash flow activities described above.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at date of inception to be cash and cash equivalents. Included in interest expense, net for the years ended December 31, 2015, 2014 and 2013 was interest income of $164.0 thousand, $192.0 thousand and $23.7 thousand, respectively, related to cash and cash equivalents.
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 sporting goods retailers. Credit is extended based on an evaluation of the customer’s financial condition and collateral is not required. The Company's largest customer in North America accounted for 18.7% and 23.4% of accounts receivable as of December 31, 2015 and December 31, 2014, respectively. The Company's largest customer accounted for 11.5%, 14.4% and 16.6% of net revenues for the years ended December 31, 2015, 2014 and 2013, respectively.
Allowance for Doubtful Accounts
The Company makes ongoing estimates relating to the collectability of accounts receivable and maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. In determining the amount of the reserve, the Company considers historical levels of credit losses and significant economic developments within the retail environment that could impact the ability of its customers to pay outstanding balances and makes judgments about the
49
creditworthiness of significant customers based on ongoing credit evaluations. Because the Company cannot predict future changes in the financial stability of its customers, actual future losses from uncollectible accounts may differ from estimates. If the financial condition of customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event the Company determines a smaller or larger reserve is appropriate, it would record a benefit or charge to selling, general and administrative expense in the period in which such a determination was made. As of December 31, 2015 and 2014, the allowance for doubtful accounts was $5.9 million and $3.7 million, respectively.
Subsequent to December 31, 2015, the Company became aware of the deteriorating financial condition of one of its wholesale customers, The Sports Authority. The Company's recorded reserve as of year-end materially reflects its best estimate, based on currently available information, of the ultimate recoverability of amounts due from this customer at December 31, 2015. As of December 31, 2015, the amount of this receivable totaled $32.5 million. However, the Company does not currently believe that the exposure to its receivables as of December 31, 2015 is materially impacted by the developments related to The Sports Authority. If the financial condition of this customer continues to deteriorate, this could result in the Company recording additional reserves against the Company's receivables balance.
Inventories
Inventories consist primarily of finished goods. Costs of finished goods inventories include all costs incurred to bring inventory to its current condition, including inbound freight, duties and other costs. The Company values it using the first-in, first-out method of cost determination. Market value is estimated based upon assumptions made about future demand and retail market conditions. If the Company determines that the estimated market value of its inventory is less than the carrying value of such inventory, it records a charge to cost of goods sold to reflect the lower of cost or market. If actual market conditions are less favorable than those projected by the Company, further adjustments may be required that would increase the cost of goods sold in the period in which such a determination was made.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.
Assessing whether deferred tax assets are realizable requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company’s deferred tax assets, which increase income tax expense in the period when such a determination is made.
Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.
Property and Equipment
Property and equipment are stated at cost, including the cost of internal labor for software customized for internal use, less accumulated depreciation and amortization. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets: 3 to 10 years for furniture, office equipment, software and plant equipment and 10 to 35 years for site improvements, buildings and building equipment. Leasehold and tenant improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. The cost of in-store apparel and footwear fixtures and displays are capitalized, included in furniture, fixtures and displays, and depreciated over 3 years. The Company periodically reviews assets’ estimated useful lives based upon actual experience and expected future utilization. A change in useful life is treated as a change in accounting estimate and is applied prospectively.
The Company capitalizes the cost of interest for long term property and equipment projects based on the Company’s weighted average borrowing rates in place while the projects are in progress. Capitalized interest was $1.0 million and $0.4 million as of December 31, 2015 and 2014, respectively.
50
Upon retirement or disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in selling, general and administrative expenses for that period. Major additions and betterments are capitalized to the asset accounts while maintenance and repairs, which do not improve or extend the lives of assets, are expensed as incurred.
Goodwill, Intangible Assets and Long-Lived Assets
Goodwill and intangible assets are recorded at their estimated fair values at the date of acquisition and are allocated to the reporting units that are expected to receive the related benefits. Goodwill and indefinite lived intangible assets are not amortized and are required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be impaired. In conducting an annual impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that is the case, or if goodwill is allocated to a reporting unit for the first time, the Company performs the two-step goodwill impairment test. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. We calculate fair value using the discounted cash flows model, which indicates the fair value of the reporting unit based on the present value of the cash flows that we expect the reporting unit to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital, long-term rate of growth and profitability of the reporting unit’s business, and working capital effects. If the carrying amount exceeds its fair value, the second step will be performed. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value.The Company performs its annual impairment tests in the fourth quarter of each fiscal year. As of December 31, 2015, no impairment of goodwill was identified, and no reporting unit was at risk of failing step one of the impairment test.
The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be recoverable. These factors may include a significant deterioration of operating results, changes in business plans, or changes in anticipated cash flows. When factors indicate that an asset should be evaluated for possible impairment, the Company reviews long-lived assets to assess recoverability from future operations using undiscounted cash flows. If future undiscounted cash flows are less than the carrying value, an impairment is recognized in earnings to the extent that the carrying value exceeds fair value.
Accrued Expenses
At December 31, 2015, accrued expenses primarily included $63.8 million and $17.8 million of accrued compensation and benefits and marketing expenses, respectively. At December 31, 2014, accrued expenses primarily included $61.4 million and $14.0 million of accrued compensation and benefits and marketing expenses, respectively.
Foreign Currency Translation and Transactions
The functional currency for each of the Company’s wholly owned foreign subsidiaries is generally the applicable local currency. The translation of foreign currencies into U.S. dollars is performed for assets and liabilities using current foreign currency exchange rates in effect at the balance sheet date and for revenue and expense accounts using average foreign currency exchange rates during the period. Capital accounts are translated at historical foreign currency exchange rates. Translation gains and losses are included in stockholders’ equity as a component of accumulated other comprehensive income. Adjustments that arise from foreign currency exchange rate changes on transactions, primarily driven by intercompany transactions, denominated in a currency other than the functional currency are included in other expense, net on the consolidated statements of income.
Derivatives and Hedging Activities
The Company uses derivative financial instruments in the form of foreign currency forward and interest rate swap contracts to minimize the risk associated with foreign currency exchange rate and interest rate fluctuations. The Company accounts for derivative financial instruments pursuant to applicable accounting guidance. This guidance establishes accounting and reporting standards for derivative financial instruments and requires all derivatives to be recognized as either assets or liabilities on the balance sheet and to be measured at fair value. Unrealized derivative gain positions are recorded as other current assets or other long term assets, and unrealized derivative loss positions are recorded as accrued expenses or other long term liabilities, depending on the derivative financial instrument’s maturity date.
Currently, the majority of the Company’s foreign currency forward contracts are not designated as cash flow hedges, and accordingly, changes in their fair value are included in other expense, net on the consolidated statements of income. During 2014, the Company began entering into foreign currency forward contracts designated as cash flow hedges, and consequently,
51
changes in fair value, excluding any ineffective portion, are recorded in other comprehensive income until net income is affected by the variability in cash flows of the hedged transaction. The effective portion is generally released to net income after the maturity of the related derivative and is classified in the same manner as the underlying exposure. Additionally, the Company has designated its interest rate swap contract as a cash flow hedge and accordingly, the effective portion of changes in fair value are recorded in other comprehensive income and reclassified into interest expense over the life of the underlying debt obligation. The ineffective portion, if any, is recognized in current period earnings. The Company does not enter into derivative financial instruments for speculative or trading purposes.
Revenue Recognition
The Company recognizes revenue pursuant to applicable accounting standards. Net revenues consist of both net sales and license and other revenues. Net sales are recognized upon transfer of ownership, including passage of title to the customer and transfer of risk of loss related to those goods. 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 and other revenues are 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 recorded as an offset to accounts receivable as settlements are made through offsets to outstanding customer invoices. As of December 31, 2015 and 2014, there were $94.5 million and $68.9 million, respectively, in reserves for customer returns, allowances, markdowns and discounts.
Advertising Costs
Advertising costs are charged to selling, general and administrative expenses. Advertising production costs are expensed the first time an advertisement related to such production costs is run. Media (television, print and radio) placement costs are expensed in the month during which the advertisement appears, and costs related to event sponsorships are expensed when the event occurs. In addition, advertising costs include sponsorship expenses. Accounting for sponsorship payments is based upon specific contract provisions and the payments are generally expensed uniformly over the term of the contract after recording expense related to specific performance incentives once they are deemed probable. Advertising expense, including amortization of in-store marketing fixtures and displays, was $417.8 million, $333.0 million and $246.5 million for the years ended December 31, 2015, 2014 and 2013, respectively. At December 31, 2015 and 2014, prepaid advertising costs were $37.5 million and $31.1 million, respectively.
Shipping and Handling Costs
The Company charges certain customers shipping and handling fees. These fees are recorded in net revenues. The Company includes the majority of outbound handling costs as a component of selling, general and administrative expenses. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate the Company’s distribution facilities. These costs, included within selling, general and administrative expenses, were $63.7 million, $55.3 million and $46.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. The Company includes outbound freight costs associated with shipping goods to customers as a component of cost of goods sold.
Minority Investment
The Company holds a minority investment in Dome Corporation (“Dome”), the Company’s Japanese licensee. The Company invested ¥1,140.0 million, or $15.5 million, in exchange for 19.5% common stock ownership in Dome. As of December 31, 2015 and 2014, the carrying value of the Company’s investment was $12.0 million and $13.4 million, respectively, and was included in other long term assets on the consolidated balance sheets. The investment is subject to foreign currency translation rate fluctuations as it is held by the Company’s European subsidiary.
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The Company accounts for its investment in Dome under the cost method given that it does not have the ability to exercise significant influence. Additionally, the Company concluded that no event or change in circumstances occurred during the year ended December 31, 2015 that may have a significant adverse effect on the fair value of the investment.
Earnings per Share
Basic earnings per common share is computed by dividing net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Any stock-based compensation awards that are determined to be participating securities, which are stock-based compensation awards that entitle the holders to receive dividends prior to vesting, are included in the calculation of basic earnings per share using the two class method. Diluted earnings per common share is computed by dividing net income available to common stockholders for the period by the diluted weighted average common shares outstanding during the period. Diluted earnings per share reflects the potential dilution from common shares issuable through stock options, warrants, restricted stock units and other equity awards. Refer to Note 11 for further discussion of earnings per share.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with accounting guidance that requires all stock-based compensation awards granted to employees and directors to be measured at fair value and recognized as an expense in the financial statements. In addition, this guidance requires that excess tax benefits related to stock-based compensation awards be reflected as financing cash flows.
The Company uses the Black-Scholes option-pricing model to estimate the fair market value of stock-based compensation awards. The Company uses the “simplified method” to estimate the expected life of options, as permitted by accounting guidance. The “simplified method” calculates the expected life of a stock option equal to the time from grant to the midpoint between the vesting date and contractual term, taking into account all vesting tranches. The risk free interest rate is based on the yield for the U.S. Treasury bill with a maturity equal to the expected life of the stock option. Expected volatility is based on the Company's historical average. Compensation expense is recognized net of forfeitures on a straight-line basis over the total vesting period, which is the implied requisite service period. Compensation expense for performance-based awards is recorded over the implied requisite service period when achievement of the performance target is deemed probable. The forfeiture rate is estimated at the date of grant based on historical rates.
The Company issues new shares of Class A Common Stock upon exercise of stock options, grant of restricted stock or share unit conversion. Refer to Note 12 for further details on stock-based compensation.
Management Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The carrying amounts shown for the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short term maturity of those instruments. The fair value of the long term debt approximates its carrying value based on the variable nature of interest rates and current market rates available to the Company. The fair value of foreign currency forward contracts is based on the net difference between the U.S. dollars to be received or paid at the contracts’ settlement date and the U.S. dollar value of the foreign currency to be sold or purchased at the current forward exchange rate. The fair value of the interest rate swap contract is based on the net difference between the fixed interest to be paid and variable interest to be received over the term of the contract based on current market rates.
Recently Issued Accounting Standards
In May 2014, the FASB issued an Accounting Standards Update which supersedes the most current requirements. The new revenue recognition standard requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services. This guidance was previously effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption not permitted. In August 2015, the FASB issued a one-year deferral of the effective date of the new revenue recognition standard. The new standard will now be effective for annual and interim periods beginning after December
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15, 2017 with early adoption as of the original effective date permitted. The Company is currently evaluating this standard to determine the impact of its adoption on the consolidated financial statements.
In July 2015, the FASB issued an Accounting Standard Update which simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. This guidance is effective for fiscal years beginning after December 15, 2016 and for interim periods therein. The Company does not expect the adoption of this standard to have a significant impact on the consolidated financial statements.
In September 2015, the FASB issued an Accounting Standards Update which requires the acquiring company in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquiring company record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of a change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods therein. The Company does not expect the adoption of this standard to have a significant impact on the consolidated financial statements.
Recently Adopted Accounting Standards
In January 2015, the FASB issued an Accounting Standards Update which eliminates from GAAP the concept of extraordinary items and the need to separately classify, present, and disclose extraordinary events and transactions. This guidance is effective for annual and interim reporting periods beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this pronouncement did not have a material impact on the consolidated financial statements.
In November 2015, the FASB issued an Accounting Standards Update which requires deferred tax liabilities and assets to be classified as non-current in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Earlier adoption is permitted for all entities as of the beginning of an interim or annual reporting period. This amendment may be applied either prospectively or retrospectively to all periods presented. The Company adopted the provisions of this guidance prospectively in the fourth quarter of 2015, and did not retrospectively adjust the prior periods. Had the Company adopted this guidance retrospectively, $33.5 million would have been reclassified from deferred income taxes-current to deferred income taxes-long term for the year ended December 31, 2014. The adoption of this guidance will simplify the presentation of deferred income taxes and reduce complexity without decreasing the usefulness of information provided to users of financial statements. The adoption of this pronouncement did not have a significant impact on the Company's financial position, results of operations and cash flows.
3. Acquisitions
Endomondo
On January 5, 2015, the Company acquired 100% of the outstanding equity of Endomondo, a Denmark-based digital connected fitness company, to expand the Under Armour Connected Fitness community. The purchase price was $85.0 million, adjusted for working capital.
The Company recognized $0.6 million and $0.8 million in acquisition related costs that were expensed during the three months ended March 31, 2015 and December 31, 2014, respectively. These costs are included in the consolidated statements of income in the line item entitled “Selling, general and administrative expenses.” Pro forma results are not presented, as the acquisition was not considered material to the consolidated Company.
MyFitnessPal
On March 17, 2015, the Company acquired 100% of the outstanding equity of MFP, a digital nutrition and connected fitness company, to expand the Under Armour Connected Fitness community. The final adjusted transaction value totaled $474.0 million. The total consideration of $463.9 million was adjusted to reflect the accelerated vesting of certain share awards of MFP, which are not conditioned upon continued employment, and transaction costs borne by the selling shareholders. The acquisition was funded with $400.0 million of increased term loan borrowings and a draw on the revolving credit facility, with the remaining amount funded by cash on hand.
The Company recognized $5.7 million of acquisition related costs that were expensed during the three months ended March 31, 2015. These costs are included in the consolidated statement of income in the line item entitled “Selling, general and administrative expenses.”
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The following represents the pro forma consolidated income statement as if MFP had been included in the consolidated results of the Company for the year ended December 31, 2015 and December 31, 2014:
Year ended December 31, | |||||||
(In thousands) | 2015 | 2014 | |||||
Net revenues | $ | 3,967,008 | $ | 3,098,341 | |||
Net income | 231,277 | 189,659 | |||||
These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of MFP to reflect the acquisition as if it closed on January 1, 2014. Pro forma net income for the year ended December 31, 2014 includes $5.7 million in transaction expenses which were included in the consolidated statement of income for the year ended December 31, 2015, but excluded from the calculation of pro forma net income for December 31, 2015.
These acquisitions have been accounted for as business combinations under the acquisition method and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their respective fair values on the acquisition dates, with the remaining unallocated purchase price recorded as goodwill. These purchase price allocations are final. The following table summarizes the allocation of estimated fair values of the net assets acquired, including the related estimated useful lives, where applicable:
MyFitnessPal | Endomondo | ||||||||
(in thousands) | Useful life (in years) | (in thousands) | Useful life (in years) | ||||||
Finite-lived intangible assets: | |||||||||
User base | $ | 38,300 | 10 | $ | 10,600 | 10 | |||
Nutrition database | 4,500 | 10 | — | N/A | |||||
Technology | 3,200 | 5 | 5,000 | 5 | |||||
Trade name | 2,300 | 5 | 400 | 5 | |||||
Other assets acquired | 16,190 | 3,738 | |||||||
Liabilities assumed | (3,291 | ) | (2,784 | ) | |||||
Net assets acquired | 61,199 | 16,954 | |||||||
Goodwill | 402,728 | 70,290 | |||||||
Total fair value of consideration | $ | 463,927 | $ | 87,244 | |||||
The Company estimated the acquisition date fair values of intangible assets based on income-based discounted cash flow models using estimates and assumptions regarding future operations. The Company is amortizing the intangible assets on a straight-line basis over their estimated useful lives. These costs are included in the consolidated statements of income in the line item entitled “Selling, general and administrative expenses.”
The goodwill recorded as a result of the acquisitions primarily reflects unidentified intangible assets acquired, including operational synergies across the Company, assembled workforces, the value of integrating acquired technologies and engaging and growing the connected fitness community. None of the goodwill is expected to be deductible for tax purposes. The following table summarizes the Company's allocation of goodwill to its operating segments:
MyFitnessPal | Endomondo | ||||||
(in thousands) | (in thousands) | ||||||
Goodwill: | |||||||
North America | $ | 183,817 | $ | 14,253 | |||
EMEA | 81,300 | 29,452 | |||||
Asia-Pacific | 70,266 | 11,446 | |||||
Latin America | 55,275 | 988 | |||||
Connected Fitness | 12,070 | 14,151 | |||||
Total goodwill | $ | 402,728 | 70,290 | ||||
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4. Property and Equipment, Net
Property and equipment consisted of the following:
December 31, | ||||||||
(In thousands) | 2015 | 2014 | ||||||
Leasehold and tenant improvements | $ | 214,834 | $ | 128,088 | ||||
Furniture, fixtures and displays | 132,736 | 80,035 | ||||||
Buildings | 47,137 | 46,419 | ||||||
Software | 99,309 | 67,506 | ||||||
Office equipment | 50,399 | 51,531 | ||||||
Plant equipment | 118,138 | 70,317 | ||||||
Land | 17,628 | 17,628 | ||||||
Construction in progress | 147,581 | 57,677 | ||||||
Other | 4,002 | 3,175 | ||||||
Subtotal property and equipment | 831,764 | 522,376 | ||||||
Accumulated depreciation | (293,233 | ) | (216,812 | ) | ||||
Property and equipment, net | $ | 538,531 | $ | 305,564 | ||||
Construction in progress primarily includes costs incurred for software systems, leasehold improvements and in-store fixtures and displays not yet placed in use.
Depreciation expense related to property and equipment was $87.1 million, $63.6 million and $48.3 million for the years ended December 31, 2015, 2014 and 2013, respectively.
5. Goodwill and Intangible Assets, Net
The following table summarizes changes in the carrying amount of the Company’s goodwill by reportable segment as of the periods indicated:
(In thousands) | North America | Connected Fitness | International | Total | ||||||||||||
Balance as of December 31, 2014 | $ | 119,799 | $ | 2,445 | $ | 1,012 | $ | 123,256 | ||||||||
Goodwill acquired | 198,417 | 26,217 | 248,724 | 473,358 | ||||||||||||
Effect of currency translation adjustment | (1,363 | ) | (1,302 | ) | (8,768 | ) | (11,433 | ) | ||||||||
Balance as of December 31, 2015 | $ | 316,853 | $ | 27,360 | $ | 240,968 | $ | 585,181 | ||||||||
The following table summarizes the Company’s intangible assets as of the periods indicated:
December 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
(In thousands) | Useful Lives from Date of Acquisitions (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||||||||||||
User base | 10 | $ | 47,922 | $ | (3,965 | ) | $ | 43,957 | $ | — | $ | — | $ | — | ||||||||||||
Technology | 5-7 | 19,739 | (5,041 | ) | 14,698 | 12,000 | (1,907 | ) | 10,093 | |||||||||||||||||
Customer relationships | 2-3 | 10,738 | (8,354 | ) | 2,384 | 11,927 | (4,692 | ) | 7,235 | |||||||||||||||||
Trade name | 4-5 | 7,663 | (3,036 | ) | 4,627 | 5,000 | (1,353 | ) | 3,647 | |||||||||||||||||
Nutrition database | 10 | 4,500 | (356 | ) | 4,144 | — | — | — | ||||||||||||||||||
Lease-related intangible assets | 1-15 | 3,896 | (2,919 | ) | 977 | 3,896 | (2,762 | ) | 1,134 | |||||||||||||||||
Other | 5-10 | 1,385 | (444 | ) | 941 | 2,196 | (893 | ) | 1,303 | |||||||||||||||||
Total | $ | 95,843 | $ | (24,115 | ) | $ | 71,728 | $ | 35,019 | $ | (11,607 | ) | $ | 23,412 | ||||||||||||
Indefinite-lived intangible assets | 3,958 | 2,818 | ||||||||||||||||||||||||
Intangible assets, net | $ | 75,686 | $ | 26,230 | ||||||||||||||||||||||
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Amortization expense, which is included in selling, general and administrative expenses, was $13.9 million, $8.5 million and $2.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. The following is the estimated amortization expense for the Company’s intangible assets as of December 31, 2015:
(In thousands) | |||
2016 | $ | 13,023 | |
2017 | 10,530 | ||
2018 | 9,367 | ||
2019 | 9,260 | ||
2020 | 7,256 | ||
2021 and thereafter | 22,292 | ||
Amortization expense of intangible assets | $ | 71,728 | |
At December 31, 2015, 2014 and 2013, the Company determined that its goodwill and indefinite-lived intangible assets were not impaired.
6. Credit Facility and Other Long Term Debt
Credit Facility
In May 2014, the Company entered into a new unsecured $650.0 million credit agreement that provided for both revolving credit facility borrowings and term loan borrowings and had a term of five years through May 2019, with permitted extensions under certain circumstances. In March 2015, the Company amended the credit agreement to add an additional $150.0 million of term loan borrowings, resulting in aggregate term loan borrowings of $350.0 million, and increase revolving credit facility commitments to $800.0 million. As of December 31, 2015, the Company had $275.0 million of revolving borrowings outstanding under the revolving credit facility, and $525.0 million of remaining availability.
In January 2016, the Company further amended the credit agreement to increase revolving credit facility commitments from $800.0 million to $1.25 billion. This amendment also extended the term of the revolving credit facility and the remaining outstanding term loans under the credit agreement from May 2019 to January 2021. Simultaneously with entering into this, the Company borrowed $138.8 million under the revolving credit facility to repay in full the balance of the $150.0 million term loan borrowing originally borrowed in March 2015. After giving effect to this amendment and the related repayment, as well as additional borrowings under the revolving credit facility in February 2016, the Company had $565.0 million of revolving borrowings outstanding and $685.0 million of remaining availability under the revolving credit facility. At the request of the Company and the lenders' consent, revolving and/or term loan borrowings may be increased by up to $300.0 million in aggregate, subject to certain conditions as set forth in the credit agreement. Incremental borrowings are uncommitted and the availability thereof will depend on market conditions at the time the Company seeks to incur such borrowings.
Borrowings under the revolving credit facility may be made in U.S. Dollars, Euros, Pounds Sterling, Japanese Yen and
Canadian Dollars. These borrowings have maturities of less than one year but are classified as non-current as the Company has the intent and ability to refinance these obligations on a long-term basis. Up to $50.0 million of the facility may be used for the issuance of letters of credit and up to $50.0 million of the facility may be used for the issuance of swingline loans. There were $1.0 million of letters of credit and no swingline loans outstanding as of December 31, 2015.
The credit agreement contains negative covenants that, subject to significant exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. The Company is also required to maintain a ratio of consolidated EBITDA, as defined in the credit agreement, to consolidated interest expense of not less than 3.50 to 1.00 and is not permitted to allow the ratio of consolidated total indebtedness to consolidated EBITDA to be greater than 3.25 to 1.00 ("consolidated leverage ratio"). As of December 31, 2015, the Company was in compliance with these ratios. In addition, the credit agreement contains events of default that are customary for a facility of this nature, and includes a cross default provision whereby an event of default under other material indebtedness, as defined in the credit agreement, will be considered an event of default under the credit agreement.
Borrowings under the credit agreement bear interest at a rate per annum equal to, at the Company’s option, either (a) an alternate base rate, or (b) a rate based on the rates applicable for deposits in the interbank market for U.S. Dollars or the applicable currency in which the loans are made (“adjusted LIBOR”), plus in each case an applicable margin. The applicable margin for loans will be adjusted by reference to a grid (the “Pricing Grid”) based on the consolidated leverage ratio and ranges between 1.00% to 1.25% for adjusted LIBOR loans and 0.00% to 0.25% for alternate base rate loans. The weighted average
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interest rates under the outstanding term loans ranged from 1.29% to 1.32% and was 1.16% during the years ended December 31, 2015 and 2014, respectively. The weighted average interest rate under the revolving credit facility was 1.33% during the year ended December 31, 2015. The Company pays a commitment fee on the average daily unused amount of the revolving credit facility and certain fees with respect to letters of credit. As of December 31, 2015, the commitment fee was 15.0 basis points. The Company incurred and capitalized $2.9 million in deferred financing costs in connection with the credit facility.
Other Long Term Debt
The Company has long term debt agreements with various lenders to finance the acquisition or lease of qualifying capital investments. Loans under these agreements are collateralized by a first lien on the related assets acquired. At December 31, 2014 and 2013, the outstanding principal balance under these agreements was $2.0 million and $4.9 million, respectively. As of December 31, 2015 there was no outstanding principal balance under these agreements. Currently, advances under these agreements bear interest rates which are fixed at the time of each advance. The weighted average interest rates on outstanding borrowings were 3.3%, 3.1% and 3.3% for the years ended December 31, 2015, 2014 and 2013, respectively.
In December 2012, the Company entered into a $50.0 million recourse loan collateralized by the land, buildings and tenant improvements comprising the Company's corporate headquarters. The loan has a seven year term and maturity date of December 2019. The loan bears interest at one month LIBOR plus a margin of 1.50%, and allows for prepayment without penalty. The loan includes covenants and events of default substantially consistent with the new credit agreement discussed above. The loan also requires prior approval of the lender for certain matters related to the property, including transfers of any interest in the property. As of December 31, 2015, 2014 and 2013, the outstanding balance on the loan was $44.0 million, $46.0 million and $48.0 million, respectively. The weighted average interest rate on the loan was 1.7% for the years ended December 31, 2015, 2014 and 2013.
The following are the scheduled maturities of long term debt as of December 31, 2015:
(In thousands) | |||
2016 | $ | 42,000 | |
2017 | 42,000 | ||
2018 | 42,000 | ||
2019 | 543,000 | ||
2020 | — | ||
2021 and thereafter | — | ||
Total scheduled maturities of long term debt | 669,000 | ||
Less current maturities of long term debt | 42,000 | ||
Long term debt obligations | $ | 627,000 | |
Interest expense, net was $14.6 million, $5.3 million and $2.9 million for the years ended December 31, 2015, 2014 and 2013, respectively. Interest expense includes the amortization of deferred financing costs and interest expense under the credit and long term debt facilities.
The Company monitors the financial health and stability of its lenders under the credit and other long term debt facilities, however during any period of significant instability in the credit markets lenders could be negatively impacted in their ability to perform under these facilities.
7. Commitments and Contingencies
Obligations Under Operating Leases
The Company leases warehouse space, office facilities, space for its brand and factory house stores and certain equipment under non-cancelable operating leases. The leases expire at various dates through 2031, excluding extensions at the Company’s option, and include provisions for rental adjustments. The table below includes executed lease agreements for brand and factory house stores that the Company did not yet occupy as of December 31, 2015 and does not include contingent rent the Company may incur at its stores based on future sales above a specified minimum or payments made for maintenance, insurance and real estate taxes. The following is a schedule of future minimum lease payments for non-cancelable real property operating leases as of December 31, 2015 as well as significant operating lease agreements entered into during the period after December 31, 2015 through the date of this report:
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(In thousands) | ||||
2016 | $ | 84,620 | ||
2017 | 84,566 | |||
2018 | 81,912 | |||
2019 | 77,332 | |||
2020 | 73,808 | |||
2021 and thereafter | 314,836 | |||
Total future minimum lease payments | $ | 717,074 | ||
Included in selling, general and administrative expense was rent expense of $83.0 million, $59.0 million and $41.8 million for the years ended December 31, 2015, 2014 and 2013, respectively, under non-cancelable operating lease agreements. Included in these amounts was contingent rent expense of $11.0 million, $11.0 million and $7.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Sports Marketing and Other Commitments
Within the normal course of business, the Company enters into contractual commitments in order to promote the Company’s brand and products. These commitments include sponsorship agreements with teams and athletes on the collegiate and professional levels, official supplier agreements, athletic event sponsorships and other marketing commitments. The following is a schedule of the Company’s future minimum payments under its sponsorship and other marketing agreements as of December 31, 2015, as well as significant sponsorship and other marketing agreements entered into during the period after December 31, 2015 through the date of this report:
(In thousands) | |||
2016 | $ | 126,488 | |
2017 | 138,607 | ||
2018 | 137,591 | ||
2019 | 98,486 | ||
2020 | 67,997 | ||
2021 and thereafter | 289,374 | ||
Total future minimum sponsorship and other payments | $ | 858,543 | |
The amounts listed above are the minimum compensation obligations and guaranteed royalty fees required to be paid under the Company’s sponsorship and other marketing agreements. The amounts listed above do not include additional performance incentives and product supply obligations provided under certain agreements. It is not possible to determine how much the Company will spend on product supply obligations on an annual basis as contracts generally do not stipulate specific cash amounts to be spent on products. The amount of product provided to the sponsorships depends on many factors including general playing conditions, the number of sporting events in which they participate and the Company’s decisions regarding product and marketing initiatives. In addition, the costs to design, develop, source and purchase the products furnished to the endorsers are incurred over a period of time and are not necessarily tracked separately from similar costs incurred for products sold to customers.
Other
In connection with various contracts and agreements, the Company has agreed to indemnify counterparties against certain third party claims relating to the infringement of intellectual property rights and other items. Generally, such indemnification obligations do not apply in situations in which the counterparties are grossly negligent, engage in willful misconduct, or act in bad faith. Based on the Company’s historical experience and the estimated probability of future loss, the Company has determined that the fair value of such indemnifications is not material to its consolidated financial position or results of operations.
From time to time, the Company is involved in litigation and other proceedings, including matters related to commercial and intellectual property disputes, as well as trade, regulatory and other claims related to its business. The Company believes that all current proceedings are routine in nature and incidental to the conduct of its business, and that the ultimate resolution of any such proceedings will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.
Following the Company’s announcement of the creation of a new class of common stock, referred to as the Class C common stock, par value $0.0003 1/3 per share, four purported class action lawsuits were brought against the Company and the
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members of the Company’s Board of Directors on behalf of the stockholders of the Company, the first of which was filed on June 18, 2015. These lawsuits were filed in the Circuit Court for Baltimore City, Maryland (the "Court"), and were consolidated into one action, In re: Under Armour Shareholder Litigation, Case No. 24-C-15-003240. The lawsuits generally alleged that the individual defendants breached their fiduciary duties in connection with approving the creation of the Class C common stock, as well as in connection with recommending for approval by stockholders certain governance related changes to the Company’s charter.
On October 7, 2015, the Company announced that it had reached an agreement on settlement terms with the lead plaintiff. The Court has preliminarily approved the settlement terms, and is expected to determine whether to grant final approval of the settlement at hearing on February 29, 2016. Under the terms of the settlement, following the initial distribution of the Class C common stock, the Company has agreed to issue additional consideration to the holders of Class C common stock in the form of a dividend with a value of $59 million, which will be payable in the form of the Company’s Class A common stock, Class C common stock, cash or a combination thereof, to be determined at the sole discretion of the Company’s Board of Directors. This dividend must be authorized by the Board of Directors within approximately 60 days following the initial distribution of the Class C common stock. Additionally, the settlement agreement includes certain non-monetary remedies, including an amendment to the Confidentiality, Non-Competition and Non-Solicitation Agreement between the Company and Kevin A. Plank, the Company’s Chairman and Chief Executive Officer, and an agreement that the Company’s Board of Directors will undertake certain considerations when using more than a specified amount of shares of Class C common stock as consideration in certain acquisition transactions.
8. Stockholders’ Equity
The Company’s Class A Common Stock and Class B Convertible Common Stock have an authorized number of shares at December 31, 2015 of 400.0 million shares and 34.5 million shares, respectively, and each have a par value of $0.0003 1/3 per share. 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 and Chief Executive Officer, 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. 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.
In June 2015, the Company's Board of Directors (the “Board”) approved Articles Supplementary to the Company's charter which designated 400,000,000 shares of common stock as a new class of common stock, referred to as the Class C common stock, par value $0.0003 1/3 per share. The Articles Supplementary became effective on June 15, 2015. The Company has not yet issued any shares of Class C common stock, but the Company has announced the intention of its Board to consider distributing shares of the Class C common stock as a dividend to the Company's holders of Class A and Class B common stock. The decision to proceed with, and timing of, this dividend will be made by the Board in its discretion and there can be no assurance that this dividend will be declared or paid. 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.
9. 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; |
Level 2: | Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and |
Level 3: | Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Financial assets and (liabilities) measured at fair value are set forth in the table below:
December 31, 2015 | December 31, 2014 | |||||||||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Derivative foreign currency contracts (see Note 14) | $ | — | $ | 3,811 | $ | — | $ | — | $ | 806 | $ | — | ||||||||||||
Interest rate swap contracts (see Note 14) | — | (1,486 | ) | — | — | (607 | ) | — | ||||||||||||||||
TOLI policies held by the Rabbi Trust (see Note 13) | — | 4,456 | — | — | 4,734 | — | ||||||||||||||||||
Deferred Compensation Plan obligations (see Note 13) | — | (5,072 | ) | — | — | (4,525 | ) | — | ||||||||||||||||
Available-for-sale securities | 6,534 | — | — | — | — | — | ||||||||||||||||||
Fair values of the financial assets and liabilities listed above are determined using inputs that use as their basis readily observable market data that are actively quoted and are validated through external sources, including third-party pricing services and brokers. The foreign currency forward contracts represent gains and losses on derivative contracts, which is the net difference between the U.S. dollar value to be received or paid at the contracts’ settlement date and the U.S. dollar value of the foreign currency to be sold or purchased at the current forward exchange rate. The interest rate swap contract represents gains and losses on the derivative contract, which is the net difference between the fixed interest to be paid and variable interest to be received over the term of the contract based on current market rates. The fair value of the trust owned life insurance (“TOLI”) policies held by the Rabbi Trust is based on the cash-surrender value of the life insurance policies, which are invested primarily in mutual funds and a separately managed fixed income fund. These investments are initially made in the same funds and purchased in substantially the same amounts as the selected investments of participants in the Under Armour, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”), which represent the underlying liabilities to participants in the Deferred Compensation Plan. Liabilities under the Deferred Compensation Plan are recorded at amounts due to participants, based on the fair value of participants’ selected investments.
The carrying value of the Company's long term debt approximated its fair value as of December 31, 2015 and 2014. The fair value of the Company's long term debt was estimated based upon quoted prices for similar instruments (Level 2 input).
10. Provision for Income Taxes
Income before income taxes is as follows:
Year Ended December 31, | |||||||||||
(In thousands) | 2015 | 2014 | 2013 | ||||||||
Income before income taxes: | |||||||||||
United States | $ | 272,739 | $ | 269,503 | $ | 196,558 | |||||
Foreign | 113,946 | 72,707 | 64,435 | ||||||||
Total | $ | 386,685 | $ | 342,210 | $ | 260,993 | |||||
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The components of the provision for income taxes consisted of the following:
Year Ended December 31, | |||||||||||
(In thousands) | 2015 | 2014 | 2013 | ||||||||
Current | |||||||||||
Federal | $ | 102,317 | $ | 110,439 | $ | 85,542 | |||||
State | 27,500 | 24,419 | 19,130 | ||||||||
Other foreign countries | 28,336 | 16,489 | 13,295 | ||||||||
158,153 | 151,347 | 117,967 | |||||||||
Deferred | |||||||||||
Federal | 707 | (15,368 | ) | (14,722 | ) | ||||||
State | (5,703 | ) | (4,073 | ) | (5,541 | ) | |||||
Other foreign countries | 955 | 2,262 | 959 | ||||||||
(4,041 | ) | (17,179 | ) | (19,304 | ) | ||||||
Provision for income taxes | $ | 154,112 | $ | 134,168 | $ | 98,663 | |||||
A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows:
Year Ended December 31, | ||||||||
2015 | 2014 | 2013 | ||||||
U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
State taxes, net of federal tax impact | 3.2 | 3.8 | 2.4 | |||||
Unrecognized tax benefits | 3.4 | 1.9 | 2.5 | |||||
Nondeductible expenses | 2.2 | 1.0 | 1.1 | |||||
Foreign rate differential | (5.5 | ) | (4.5 | ) | (4.8 | ) | ||
Foreign valuation allowance | 2.7 | 2.5 | 1.5 | |||||
Other | (1.1 | ) | (0.5 | ) | 0.1 | |||
Effective income tax rate | 39.9 | % | 39.2 | % | 37.8 | % | ||
The increase in the 2015 full year effective income tax rate, as compared to 2014, is primarily due to increased non-deductible costs incurred in connection with the Company's Connected Fitness acquisitions in 2015.
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Deferred tax assets and liabilities consisted of the following:
December 31, | ||||||||
(In thousands) | 2015 | 2014 | ||||||
Deferred tax asset | ||||||||
Stock-based compensation | $ | 40,406 | $ | 35,161 | ||||
Allowance for doubtful accounts and other reserves | 33,821 | 24,774 | ||||||
Accrued expenses | 19,999 | 11,398 | ||||||
Foreign net operating loss carryforward | 19,600 | 16,302 | ||||||
Deferred rent | 13,991 | 11,005 | ||||||
Inventory obsolescence reserves | 11,956 | 8,198 | ||||||
Tax basis inventory adjustment | 10,019 | 5,845 | ||||||
U. S. net operating loss carryforward | 9,217 | 4,733 | ||||||
Foreign tax credits | 6,151 | 5,131 | ||||||
State tax credits, net of federal tax impact | 4,966 | 4,245 | ||||||
Deferred compensation | 2,080 | 1,858 | ||||||
Other | 6,346 | 4,592 | ||||||
Total deferred tax assets | 178,552 | 133,242 | ||||||
Less: valuation allowance | (24,043 | ) | (15,550 | ) | ||||
Total net deferred tax assets | 154,509 | 117,692 | ||||||
Deferred tax liability | ||||||||
Property, plant and equipment | (31,069 | ) | (17,638 | ) | ||||
Intangible assets | (22,820 | ) | (7,010 | ) | ||||
Prepaid expenses | (8,766 | ) | (6,424 | ) | ||||
Other | (627 | ) | (612 | ) | ||||
Total deferred tax liabilities | (63,282 | ) | (31,684 | ) | ||||
Total deferred tax assets, net | $ | 91,227 | $ | 86,008 | ||||
In connection with the Company's acquisition of MyFitnessPal (see Note 3), the Company acquired $21.1 million in deferred tax assets associated with approximately $89.1 million in federal and state net operating loss (“NOLs”) carryforwards and $1.4 million in tax credit carryforwards. The acquisition resulted in a “change of ownership” within the meaning of Section 382 of the Internal Revenue Code, and, as a result, such NOLs are subject to an annual limitation.
As of December 31, 2015, the Company had $9.9 million in deferred tax assets associated with approximately $60.4 million in federal and state net operating losses and $1.4 million in tax credit carryforwards from the acquisition of MyFitnessPal remaining, which will expire beginning 2033 through 2035. Based upon the historical taxable income and projections of future taxable income over periods in which these NOLs will be deductible, the Company believes that it is more likely than not that the Company will be able to fully utilize these NOLs before the carry-forward periods expire beginning 2033 through 2035, and therefore a valuation allowance is not required.
As of December 31, 2015, the Company had $19.6 million in deferred tax assets associated with approximately $75.3 million in foreign net operating loss carryforwards, which will expire beginning 2017 through 2021. As of December 31, 2015, the Company believes certain deferred tax assets associated with foreign net operating loss carryforwards will expire unused based on the Company's projections. Therefore, a valuation allowance of $6.8 million was recorded against the Company's net deferred tax assets in 2015.
As of December 31, 2015, the Company had $6.2 million in deferred tax assets associated with foreign tax credits. As of December 31, 2015 the Company believes that a portion of the foreign taxes paid would not be creditable against its future income taxes. Therefore, a full valuation allowance was recorded against the Company's net deferred tax assets.
As of December 31, 2015, approximately $48.5 million of cash and cash equivalents was held by the Company's non-U.S. subsidiaries whose cumulative undistributed earnings total $298.5 million. Withholding and U.S. taxes have not been provided on the undistributed earnings as the earnings are being permanently reinvested in its non-U.S. subsidiaries. Determining the tax liability that would arise if these earnings were repatriated is not practical.
The Company utilizes the “with and without” method for intraperiod allocation of income tax provisions. Certain tax benefits associated with the Company’s stock-based compensation arrangements are recorded directly to stockholders’ equity including benefit from excess tax deductions.
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As of December 31, 2015 and 2014, the total liability for unrecognized tax benefits, including related interest and penalties, was approximately $46.9 million and $31.3 million, respectively. The following table represents a reconciliation of the Company's total unrecognized tax benefits balances, excluding interest and penalties, for the years ended December 31, 2015, 2014 and 2013:
Year Ended December 31, | ||||||||||||
(In thousands) | 2015 | 2014 | 2013 | |||||||||
Beginning of year | $ | 28,353 | $ | 21,712 | $ | 15,297 | ||||||
Increases as a result of tax positions taken in a prior period | 203 | 250 | — | |||||||||
Decreases as a result of tax positions taken in a prior period | — | — | — | |||||||||
Increases as a result of tax positions taken during the current period | 14,382 | 8,947 | 7,526 | |||||||||
Decreases as a result of tax positions taken during the current period | — | — | — | |||||||||
Decreases as a result of settlements during the current period | — | — | — | |||||||||
Reductions as a result of a lapse of statute of limitations during the current period | (327 | ) | (2,556 | ) | (1,111 | ) | ||||||
End of year | $ | 42,611 | $ | 28,353 | $ | 21,712 | ||||||
As of December 31, 2015, $38.4 million of unrecognized tax benefits, excluding interest and penalties, would impact the Company's effective tax rate if recognized.
As of December 31, 2015, 2014 and 2013, the liability for unrecognized tax benefits included $4.3 million, $3.0 million and $2.4 million, respectively, for the accrual of interest and penalties. For each of the years ended December 31, 2015, 2014 and 2013, the Company recorded $1.7 million, $1.2 million and $1.0 million, respectively, for the accrual of interest and penalties in its consolidated statements of income. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is currently under audit by the Internal Revenue Service for the 2011, 2012, and 2013 tax years. The majority of the Company's returns for years before 2012 are no longer subject to U.S. federal, state and local or foreign income tax examinations by tax authorities.
The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve months. However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company's current estimates to change materially in the future.
11. Earnings per Share
The calculation of earnings per share for common stock shown below excludes the income attributable to outstanding restricted stock awards from the numerator and excludes the impact of these awards from the denominator. The following is a reconciliation of basic earnings per share to diluted earnings per share:
Year Ended December 31, | ||||||||||||
(In thousands, except per share amounts) | 2015 | 2014 | 2013 | |||||||||
Numerator | ||||||||||||
Net income | $ | 232,573 | $ | 208,042 | $ | 162,330 | ||||||
Denominator | ||||||||||||
Weighted average common shares outstanding | 215,498 | 213,227 | 210,696 | |||||||||
Effect of dilutive securities | 5,370 | 6,153 | 5,262 | |||||||||
Weighted average common shares and dilutive securities outstanding | 220,868 | 219,380 | 215,958 | |||||||||
Earnings per share—basic | $ | 1.08 | $ | 0.98 | $ | 0.77 | ||||||
Earnings per share—diluted | $ | 1.05 | $ | 0.95 | $ | 0.75 | ||||||
Effects of potentially dilutive securities are presented only in periods in which they are dilutive. Stock options, restricted stock units and warrants representing 770.0 thousand, 22.6 thousand and 116.9 thousand shares of common stock were outstanding for the years ended December 31, 2015, 2014 and 2013, respectively, but were excluded from the computation of diluted earnings per share because their effect would be anti-dilutive.
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12. Stock-Based Compensation
Stock Compensation Plans
The Under Armour, Inc. Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan (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. Stock options and restricted stock and restricted stock unit awards under the 2005 Plan generally vest ratably over a two to four year period. The contractual term for stock options is generally ten 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. The 2005 Plan terminates in 2025. As of December 31, 2015, 18.1 million shares are available for future grants of awards under the 2005 Plan.
Total stock-based compensation expense for the years ended December 31, 2015, 2014 and 2013 was $60.4 million, $50.8 million and $43.2 million, respectively. As of December 31, 2015, the Company had $46.3 million of unrecognized compensation expense expected to be recognized over a weighted average period of 1.1 years. This unrecognized compensation expense does not include any expense related to performance-based restricted stock units and stock options for which the performance targets have not been deemed probable as of December 31, 2015. Refer to “Stock Options” and “Restricted Stock and Restricted Stock Units” below for further information on these awards.
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (the “ESPP”) allows for the purchase of Class A 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 December 31, 2015, 2.7 million shares are available for future purchases under the ESPP. During the years ended December 31, 2015, 2014 and 2013, 103.3 thousand, 87.6 thousand and 108.4 thousand shares were purchased under the ESPP, respectively.
Non-Employee Director Compensation Plan and Deferred Stock Unit 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 $100.0 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 $125.0 thousand on the grant date. 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 Common Stock with the shares delivered six months following the termination of the director’s service.
Stock Options
The weighted average fair value of a stock option granted for the years ended December 31, 2015 and December 31, 2013 was $54.59 and $12.91, respectively. There were no stock options granted during the year ended December 31, 2014. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
Year Ended December 31, | ||||||||
2015 | 2014 | 2013 | ||||||
Risk-free interest rate | 1.8 | % | — | % | 1.2 | % | ||
Average expected life in years | 6.00 | 0 | 6.25 | |||||
Expected volatility | 44.3 | % | — | % | 55.4 | % | ||
Expected dividend yield | — | % | — | % | — | % | ||
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A summary of the Company’s stock options as of December 31, 2015, 2014 and 2013, and changes during the years then ended is presented below:
(In thousands, except per share amounts) | Year Ended December 31, | ||||||||||||||||||||
2015 | 2014 | 2013 | |||||||||||||||||||
Number of Stock Options | Weighted Average Exercise Price | Number of Stock Options | Weighted Average Exercise Price | Number of Stock Options | Weighted Average Exercise Price | ||||||||||||||||
Outstanding, beginning of year | 2,811 | $ | 8.28 | 4,272 | $ | 8.11 | 6,298 | $ | 7.66 | ||||||||||||
Granted, at fair market value | 579 | 40.30 | — | — | 20 | 24.35 | |||||||||||||||
Exercised | (360 | ) | 7.92 | (1,454 | ) | 7.74 | (1,822 | ) | 6.68 | ||||||||||||
Expired | — | — | — | — | — | — | |||||||||||||||
Forfeited | (26 | ) | 4.53 | (7 | ) | 16.46 | (224 | ) | 8.41 | ||||||||||||
Outstanding, end of year | 3,004 | $ | 14.52 | 2,811 | $ | 8.28 | 4,272 | $ | 8.11 | ||||||||||||
Options exercisable, end of year | 2,446 | $ | 8.26 | 2,707 | $ | 7.87 | 2,346 | $ | 7.80 | ||||||||||||
Included in the table above are 0.3 million performance-based stock options awarded to certain executives and key employees under the 2005 Plan during the year ended December 31, 2015. These performance-based stock options have a weighted average fair value of $72.90 and have vesting that is tied to the achievement of certain combined annual operating income targets.
During the year ended December 31, 2015, the Company deemed the achievement of certain operating income targets probable for the performance-based stock options granted in 2015, and recorded $2.4 million for these awards, including a cumulative adjustment of $0.9 million during the three months ended September 30, 2015. The Company will assess the probability of the achievement of the operating income targets at the end of each reporting period. If it becomes probable that any remaining performance targets related to these performance-based stock options will be achieved, a cumulative adjustment will be recorded as if ratable stock-based compensation expense had been recorded since the grant date. Additional stock based compensation of up to $0.6 million would have been recorded through December 31, 2015 for all performance-based stock options had the full achievement of these operating income targets been deemed probable.
The intrinsic value of stock options exercised during the years ended December 31, 2015, 2014 and 2013 was $27.5 million, $73.0 million and $44.1 million, respectively.
The following table summarizes information about stock options outstanding and exercisable as of December 31, 2015:
(In thousands, except per share amounts)
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Number of Underlying Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | Total Intrinsic Value | Number of Underlying Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (Years) | Total Intrinsic Value | |||||||||||||||
3,004 | $ | 14.52 | 4.91 | $ | 198,535 | 2,446 | $ | 8.26 | 4.05 | $ | 176,973 | |||||||||||
Restricted Stock and Restricted Stock Units
A summary of the Company’s restricted stock and restricted stock units as of December 31, 2015, 2014 and 2013, and changes during the years then ended is presented below:
Year Ended December 31, | |||||||||||||||||||||
(In thousands, except per share amounts) | 2015 | 2014 | 2013 | ||||||||||||||||||
Number of Restricted Shares | Weighted Average Fair Value | Number of Restricted Shares | Weighted Average Fair Value | Number of Restricted Shares | Weighted Average Fair Value | ||||||||||||||||
Outstanding, beginning of year | 4,510 | $ | 30.42 | 5,244 | $ | 22.19 | 4,514 | $ | 19.51 | ||||||||||||
Granted | 1,015 | 76.72 | 1,061 | 54.17 | 1,682 | 26.35 | |||||||||||||||
Forfeited | (326 | ) | 48.57 | (958 | ) | 20.98 | (410 | ) | 17.37 | ||||||||||||
Vested | (1,819 | ) | 23.22 | (837 | ) | 19.49 | (542 | ) | 16.76 | ||||||||||||
Outstanding, end of year | 3,380 | $ | 46.45 | 4,510 | $ | 30.42 | 5,244 | $ | 22.19 | ||||||||||||
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Included in the table above are 0.8 million, 1.0 million and 1.4 million performance-based restricted stock units awarded to certain executives and key employees under the 2005 Plan during the years ended December 31, 2015, 2014 and 2013, respectively. These performance-based restricted stock units have a weighted average fair value of $46.91 and have vesting that is tied to the achievement of certain combined annual operating income targets.
During the year ended December 31, 2015, the Company deemed the achievement of certain operating income targets probable for the awards granted in 2015 and 2014, and recorded $30.8 million for a portion of these awards, including a cumulative adjustment of $9.1 million during the three months ended September 30, 2015. During the year ended December 31, 2014, the Company deemed the achievement of certain operating targets probable for the awards granted in 2014, 2013 and 2012, and recorded $38.4 million for a portion of these awards, including cumulative adjustments of $6.6 million during the three months ended March 31, 2014 and $3.8 million during the three months ended December 31, 2014. During the year ended December 31, 2013, the Company deemed the achievement of certain operating income targets probable for the awards granted in 2013, 2012 and 2011, and recorded $30.8 million for a portion of these awards, including a cumulative adjustment of $9.0 million during the three months ended March 31, 2013 and $11.3 million during the three months ended December 31, 2013. The Company will assess the probability of the achievement of the operating income targets at the end of each reporting period. If it becomes probable that any remaining performance targets related to these performance-based restricted stock units will be achieved, a cumulative adjustment will be recorded as if ratable stock-based compensation expense had been recorded since the grant date. Additional stock based compensation of up to $3.0 million would have been recorded through December 31, 2015 for all performance-based restricted stock units had the full achievement of these operating income targets been deemed probable.
Warrants
In 2006, the Company issued fully vested and non-forfeitable warrants to purchase 1.9 million shares of the Company’s Class A Common Stock to NFL Properties as partial consideration for footwear promotional rights which were recorded as an intangible asset. With the assistance of an independent third party valuation firm, the Company assessed the fair value of the warrants using various fair value models. Using these measures, the Company concluded that the fair value of the warrants was $3.6 million. The warrants have a term of 12 years from the date of issuance and an exercise price of $9.25 per share, which is the adjusted closing price of the Company’s Class A Common Stock on the date of issuance. As of December 31, 2015, all outstanding warrants were exercisable, and no warrants were exercised.
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 $7.0 million, $4.9 million and $2.7 million for the years ended December 31, 2015, 2014 and 2013, respectively. Shares of the Company’s Class A Common Stock are not an investment option in this plan.
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 Compensation Committee, to make an annual base salary and/or bonus deferral for each year. As of December 31, 2015 and 2014, the Deferred Compensation Plan obligations were $5.1 million and $4.5 million, respectively, and were included in other long term liabilities on the consolidated balance sheets.
The Company established the Rabbi Trust to fund obligations to participants in the Deferred Compensation Plan. As of December 31, 2015 and 2014, the assets held in the Rabbi Trust were TOLI policies with cash-surrender values of $4.5 million and $4.7 million, respectively. These assets are consolidated and are included in other long term assets on the consolidated balance sheet. Refer to Note 9 for a discussion of the fair value measurements of the assets held in the Rabbi Trust and the Deferred Compensation Plan obligations.
14. Risk Management and Derivatives
Foreign Currency Risk Management
The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions generated by its international subsidiaries in currencies other than their local currencies. These gains and losses are primarily driven by intercompany transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity. From time to time, the Company may elect to enter into foreign currency contracts to reduce the risk associated with foreign currency exchange rate fluctuations on intercompany transactions and projected inventory purchases for its international subsidiaries.
As of December 31, 2015, the aggregate notional value of the Company's outstanding foreign currency contracts was $468.1 million, which was comprised of Canadian Dollar/U.S. Dollar, Euro/U.S. Dollar, Yen/Euro, Mexican Peso/Euro and
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Pound Sterling/Euro currency pairs with contract maturities ranging from one to eleven months. A portion of the Company's foreign currency forward contracts are not designated as cash flow hedges, and accordingly, changes in their fair value are recorded in earnings. During 2014, the Company began entering into foreign currency contracts designated as cash flow hedges. For foreign currency contracts designated as cash flow hedges, changes in fair value, excluding any ineffective portion, are recorded in other comprehensive income until net income is affected by the variability in cash flows of the hedged transaction. The effective portion is generally released to net income after the maturity of the related derivative and is classified in the same manner as the underlying exposure. During the years ended December 31, 2015 and 2014, the Company reclassified $3.5 million and $0.4 million from other comprehensive income to cost of goods sold related to foreign currency contracts designated as cash flow hedges, respectively. The fair values of the Company’s foreign currency contracts were assets of $3.8 million and $0.8 million as of December 31, 2015 and 2014, respectively, and were included in prepaid expenses and other current assets on the consolidated balance sheet. Refer to Note 9 for a discussion of the fair value measurements. Included in other expense, net were the following amounts related to changes in foreign currency exchange rates and derivative foreign currency forward contracts:
(In thousands) | Year Ended December 31, | |||||||||||
2015 | 2014 | 2013 | ||||||||||
Unrealized foreign currency exchange rate gains (losses) | $ | (33,359 | ) | $ | (11,739 | ) | $ | (1,905 | ) | |||
Realized foreign currency exchange rate gains (losses) | 7,643 | 2,247 | 477 | |||||||||
Unrealized derivative gains (losses) | 388 | 1 | 13 | |||||||||
Realized derivative gains (losses) | 16,404 | 3,081 | 243 | |||||||||
Interest Rate Risk Management
In order to maintain liquidity and fund business operations, the Company enters into long term debt arrangements with various lenders which bear a range of fixed and variable rates of interest. The nature and amount of the Company's long-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. The Company may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations. The Company utilizes interest rate swap contracts to convert a portion of variable rate debt to fixed rate debt. The contracts pay fixed and receive variable rates of interest. The interest rate swap contracts are accounted for as cash flow hedges and accordingly, the effective portion of the changes in their fair value are recorded in other comprehensive income and reclassified into interest expense over the life of the underlying debt obligation. Refer to Note 6 for a discussion of long term debt.
As of December 31, 2015, the notional value of our outstanding interest rate swap contracts was $170.7 million. During the years ended December 31, 2015 and 2014, the Company recorded a $2.7 million and $1.7 million increase in interest expense, respectively, representing the effective portion of the contracts reclassified from accumulated other comprehensive income. The fair value of the interest rate swap contracts was a liability of $1.5 million and $0.6 million as of December 31, 2015 and December 31, 2014, respectively, and were included in other long term liabilities on the consolidated balance sheet.
The Company enters into derivative contracts with major financial institutions with investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the foreign currency forward contracts. However, the Company monitors the credit quality of these financial institutions and considers the risk of counterparty default to be minimal.
15. Related Party Transactions
The Company has an operating lease agreement with an entity controlled by the Company’s CEO to lease an aircraft for business purposes. The Company paid $2.0 million, $1.8 million and $1.0 million in lease payments to the entity for its use of the aircraft during the years ended December 31, 2015, 2014 and 2013, respectively. No amounts were payable to this related party as of December 31, 2015 and 2014. The Company determined the lease payments were at fair market lease rates.
During 2014, the Company entered into a lease agreement with an entity controlled by the Company’s CEO to lease corporate office space. The lease has a 10 year term beginning in 2016 and lease payments are expected to begin at $1.1 million annually with an annual escalation of 2.0% thereafter. The Company determined the lease payments were at fair market lease rates. This lease was accounted for as a build-to-suit lease.
In January 2016, the Company entered into an additional lease agreement with an entity controlled by the Company’s CEO to lease office space for an innovation lab and light-manufacturing facility. The lease has a 5 year term beginning in 2016 and lease payments are expected to begin at $515 thousand annually with an annual escalation of 2.5% thereafter. The Company determined the lease payments were at fair market lease rates.
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16. Segment Data and Related Information
The Company’s operating segments are based on how the Chief Operating Decision Maker (“CODM”) makes decisions about allocating resources and assessing performance. As such, the CODM receives discrete financial information for the Company's principal business by geographic region based on the Company’s strategy to become a global brand. These geographic regions include North America; Latin America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific. Each geographic segment operates exclusively in one industry: the development, marketing and distribution of branded performance apparel, footwear and accessories. Beginning in the first quarter of 2015, the CODM began receiving discrete financial information for the Company's Connected Fitness business. Following the completion of the Company's acquisition of Endomondo and MFP in 2015, the Company has determined its Connected Fitness business is significant and will no longer be
combined into international for disclosure purposes.
The net revenues and operating income (loss) associated with the Company's segments are summarized in the following tables. Net revenues represent sales to external customers for each segment. Intercompany balances were eliminated for separate disclosure. The majority of corporate service costs within North America have not been allocated to international or Connected Fitness; however, certain costs and revenues included within North America in the prior period have been allocated to Connected Fitness in the current period. Prior period segment data has been recast by an immaterial amount within the tables below to conform to current period presentation.
(In thousands) | Year Ended December 31, | |||||||||||
2015 | 2014 | 2013 | ||||||||||
Net revenues | ||||||||||||
North America | $ | 3,455,737 | $ | 2,796,374 | $ | 2,193,739 | ||||||
International | 454,161 | 268,771 | 137,244 | |||||||||
Connected Fitness | 53,415 | 19,225 | 1,068 | |||||||||
Total net revenues | $ | 3,963,313 | $ | 3,084,370 | $ | 2,332,051 | ||||||
(In thousands) | Year Ended December 31, | |||||||||||
2015 | 2014 | 2013 | ||||||||||
Operating income (loss) | ||||||||||||
North America | $ | 460,961 | $ | 379,814 | $ | 271,338 | ||||||
International | 8,887 | (5,190 | ) | (5,706 | ) | |||||||
Connected Fitness | (61,301 | ) | (20,669 | ) | (534 | ) | ||||||
Total operating income | 408,547 | 353,955 | 265,098 | |||||||||
Interest expense, net | (14,628 | ) | (5,335 | ) | (2,933 | ) | ||||||
Other expense, net | (7,234 | ) | (6,410 | ) | (1,172 | ) | ||||||
Income before income taxes | $ | 386,685 | $ | 342,210 | $ | 260,993 | ||||||
Net revenues by product category are as follows:
(In thousands) | Year Ended December 31, | |||||||||||
2015 | 2014 | 2013 | ||||||||||
Apparel | $ | 2,801,062 | $ | 2,291,520 | $ | 1,762,150 | ||||||
Footwear | 677,744 | 430,987 | 298,825 | |||||||||
Accessories | 346,885 | 275,409 | 216,098 | |||||||||
Total net sales | 3,825,691 | 2,997,916 | 2,277,073 | |||||||||
Licensing revenues | 84,207 | 67,229 | 53,910 | |||||||||
Connected Fitness | 53,415 | 19,225 | 1,068 | |||||||||
Total net revenues | $ | 3,963,313 | $ | 3,084,370 | $ | 2,332,051 | ||||||
As of December 31, 2015 and 2014, the majority of the Company’s long-lived assets were located in the United States. Net revenues in the United States were $3,268.8 million, $2,651.1 million and $2,082.5 million for the years ended December 31, 2015, 2014 and 2013, respectively.
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17. Unaudited Quarterly Financial Data
(In thousands) | Quarter Ended (unaudited) | Year Ended December 31, | ||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||||||
2015 | ||||||||||||||||||||
Net revenues | $ | 804,941 | $ | 783,577 | $ | 1,204,109 | $ | 1,170,686 | $ | 3,963,313 | ||||||||||
Gross profit | 377,664 | 379,053 | 587,160 | 561,670 | 1,905,547 | |||||||||||||||
Income from operations | 27,667 | 31,901 | 171,397 | 177,582 | 408,547 | |||||||||||||||
Net income | 11,728 | 14,766 | 100,477 | 105,602 | 232,573 | |||||||||||||||
Earnings per share-basic | $ | 0.05 | $ | 0.07 | $ | 0.47 | $ | 0.49 | $ | 1.08 | ||||||||||
Earnings per share-diluted | $ | 0.05 | $ | 0.07 | $ | 0.45 | $ | 0.48 | $ | 1.05 | ||||||||||
2014 | ||||||||||||||||||||
Net revenues | $ | 641,607 | $ | 609,654 | $ | 937,908 | $ | 895,201 | $ | 3,084,370 | ||||||||||
Gross profit | 300,690 | 299,952 | 465,300 | 446,264 | 1,512,206 | |||||||||||||||
Income from operations | 26,856 | 34,694 | 146,106 | 146,299 | 353,955 | |||||||||||||||
Net income | 13,538 | 17,690 | 89,105 | 87,709 | 208,042 | |||||||||||||||
Earnings per share-basic | $ | 0.06 | $ | 0.08 | $ | 0.42 | $ | 0.41 | $ | 0.98 | ||||||||||
Earnings per share-diluted | $ | 0.06 | $ | 0.08 | $ | 0.41 | $ | 0.40 | $ | 0.95 | ||||||||||
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None
ITEM 9A. | CONTROLS AND PROCEDURES |
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2015 pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2015, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Refer to Item 8 of this report for the “Report of Management on Internal Control over Financial Reporting.”
There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or that is reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION |
None
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PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this Item regarding directors is incorporated herein by reference from the 2016 Proxy Statement, under the headings “NOMINEES FOR ELECTION AT THE ANNUAL MEETING,” “CORPORATE GOVERNANCE AND RELATED MATTERS: Audit Committee” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.” Information required by this Item regarding executive officers is included under “Executive Officers of the Registrant” in Part 1 of this Form 10-K.
Code of Ethics
We have a written code of ethics and business conduct in place that applies to all our employees, including our principal executive officer, principal financial officer, and principal accounting officer and controller. A copy of our code of ethics and business conduct is available on our website: www.uabiz.com/investors.cfm. We are required to disclose any change to, or waiver from, our code of ethics and business policy for our senior financial officers. We intend to use our website as a method of disseminating this disclosure as permitted by applicable SEC rules.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this Item is incorporated by reference herein from the 2016 Proxy Statement under the headings “CORPORATE GOVERNANCE AND RELATED MATTERS: Compensation of Directors,” and “EXECUTIVE COMPENSATION.”
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this Item is incorporated by reference herein from the 2016 Proxy Statement under the heading “SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS OF SHARES.” Also refer to Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this Item is incorporated by reference herein from the 2016 Proxy Statement under the heading “TRANSACTIONS WITH RELATED PERSONS” and “CORPORATE GOVERNANCE AND RELATED MATTERS—Independence of Directors.”
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this Item is incorporated by reference herein from the 2016 Proxy Statement under the heading “INDEPENDENT AUDITORS.”
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PART IV
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
a. The following documents are filed as part of this Form 10-K:
1. Financial Statements: | |
2. Financial Statement Schedule | |
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
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3. Exhibits
The following exhibits are incorporated by reference or filed herewith. References to the Company’s 2007 Form 10-K are to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007. References to the Company’s 2010 Form 10-K are to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010. References to the Company’s 2011 Form 10-K are to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011. References to the Company’s 2012 Form 10-K are to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012. References to the Company’s 2013 Form 10-K are to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013. References to the Company’s 2014 Form 10-K are to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014.
Exhibit No. | ||
2.01 | Agreement and Plan of Merger, dated as of November 8, 2013, among Under Armour, Inc., MMF Merger Sub, Inc., MapMyFitness, Inc. and Fortis Advisors LLC (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed November 14, 2013). | |
2.02 | Agreement and Plan of Merger, dated as of February 3, 2015, among Under Armour, Inc., Marathon Merger Sub, Inc., MyFitnessPal, Inc. and Fortis Advisors LLC (incorporated by reference to Exhibit 2.02 of the Company’s 2014 Form 10-K). | |
3.01 | Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.01 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ending June 30, 2015). | |
3.02 | Articles Supplementary setting forth the terms of the Class C Common Stock, dated June 15, 2015 (incorporated by reference to Appendix F to the Preliminary Proxy Statement filed by the Company on June 15, 2015). | |
3.03 | Second Amended and Restated By-Laws (incorporated by reference to Exhibit 3.02 of the Company’s Current Report on Form 8-K filed February 21, 2013). | |
4.01 | Warrant Agreement between the Company and NFL Properties LLC dated as of August 3, 2006 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed August 7, 2006). | |
10.01 | Credit Agreement, dated May 29, 2014, by and among the Company, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, PNC Bank, National Association, as Syndication Agent, Bank of America, N.A. SunTrust Bank and Wells Fargo Bank, National Association as Co-Documentation Agents and the other lenders and arrangers party thereto (the “Credit Agreement”) (incorporated by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K filed June 2, 2014), Amendment No. 1 thereto, dated as of March 17, 2015 (incorporated by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K filed March 17, 2015), and Amendment No. 2 thereto, dated as of January 22, 2016 (incorporated by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K filed January 22, 2016). | |
10.02 | Under Armour, Inc. Executive Incentive Plan (incorporated by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K filed on May 6, 2013).* | |
10.03 | Under Armour, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.15 of the Company’s 2007 Form 10-K) and Amendment One to this plan (incorporated by reference to Exhibit 10.14 of the Company’s 2010 Form 10-K).* | |
10.04 | Form of Change in Control Severance Agreement.* | |
10.05 | Under Armour, Inc. Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan (incorporated by reference to Exhibit 10.01 of the Company’s Form 10-Q for the quarterly period ending June 30, 2015).* | |
10.06 | Forms of Non-Qualified Stock Option Grant Agreement under the Amended and Restated 2005 Omnibus Long-Term Incentive Plan (incorporated by reference to Exhibit 10.23 of the Company’s 2007 Form 10-K and Exhibit 10.08 of the Company’s 2011 Form 10-K).* | |
10.07 | Form of Restricted Stock Unit Grant Agreement under the Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan (filed herewith and incorporated by reference to Exhibit 10.08 of the Company’s 2014 Form 10-K and Exhibit 10.09 of the Company’s 2011 Form 10-K).* | |
10.08 | Forms of Performance-Based Stock Option Grant Agreement under the Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan (filed herewith and incorporated by reference to Exhibit 10.02 of the Company’s Form 10-Q for the quarterly period ended March 31, 2009, Exhibit 10.03 of the Company’s Form 10-Q for the quarterly period ended March 31, 2010 and Exhibit 10.09 of the Company’s 2014 Form 10-K).* | |
10.09 | Amendment to Stock Option Awards Effective August 3, 2011 (incorporated by reference to Exhibit 10.11 of the Company's 2011 Form 10-K).* | |
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Exhibit No. | ||
10.10 | Forms of Performance-Based Restricted Stock Unit Grant Agreement for U.S. Employees under the Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan (filed herewith and incorporated by reference to Exhibit 10.11 of the Company’s 2014 Form 10-K, Exhibit 10.12 of the Company’s 2013 Form 10-K and Exhibit 10.12 of the Company's 2012 Form 10-K) and Supplement to Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.01 of the Company’s Form 10-Q for the quarterly period ended September 30, 2014).* | |
10.11 | Forms of Performance-Based Restricted Stock Unit Grant Agreement for International Employees under the Amended and Restated 2005 Omnibus Long-Term Incentive Plan (filed herewith and incorporated by reference to Exhibit 10.12 of the Company’s 2014 Form 10-K and Exhibit 10.13 of the Company’s 2013 Form 10-K).* | |
10.12 | Form of Employee Confidentiality, Non-Competition and Non-Solicitation Agreement by and between certain executives and the Company (incorporated by reference to Exhibit 10.14 of the Company’s 2013 Form 10-K).* | |
10.13 | Employment Agreement by and between Karl-Heinz Maurath and the Company (portions of this exhibit have been omitted pursuant to a request for confidential treatment) (incorporated by reference to Exhibit 10.15 of the Company's 2012 Form 10-K).* | |
10.14 | Under Armour, Inc. 2015 Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.15 of the Company’s 2014 Form 10-K), Form of Initial Restricted Stock Unit Grant (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed June 6, 2006), Form of Annual Stock Option Award (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed June 6, 2006) and Form of Annual Restricted Stock Unit Grant (incorporated by reference to Exhibit 10.6 of the Company’s Form 10-Q for the quarterly period ended June 30, 2011).* | |
10.15 | Under Armour, Inc. 2006 Non-Employee Director Deferred Stock Unit Plan (incorporated by reference to Exhibit 10.02 of the Company’s Form 10-Q for the quarterly period ended March 31, 2010) and Amendment One to this plan (incorporated by reference to Exhibit 10.23 of the Company’s 2010 Form 10-K).* | |
10.16 | Change in Control Severance Agreement between Karl-Heinz Maurath and the Company (incorporated by reference to Exhibit 10.18 of the Company’s 2013 Form 10-K).* | |
10.17 | Confidentiality, Non-Competition and Non-Solicitation Agreement, dated June 15, 2015, between the Company and Kevin Plank (incorporated by reference to Appendix E to the Preliminary Proxy Statement filed by Under Armour, Inc. on June 15, 2015). | |
10.18 | Employment Agreement by and between Robin Thurston and the Company and Amendment No. 1 thereto.* | |
10.19 | Restricted Stock Unit Grant Agreement under the Second Amended and Restated 2005 Omnibus Long-Term Incentive Plan between Robin Thurston and the Company, including Attachment A, the Employee Confidentiality, Non-Competition and Non-Socialization Agreement by and between Robin Thurston and the Company, dated December 6, 2013.* | |
21.01 | List of Subsidiaries. | |
23.01 | Consent of PricewaterhouseCoopers LLP. | |
31.01 | Section 302 Chief Executive Officer Certification. | |
31.02 | Section 302 Chief Financial Officer Certification. | |
32.01 | Section 906 Chief Executive Officer Certification. | |
32.02 | Section 906 Chief Financial Officer Certification. | |
Exhibit No. | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
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___________
* | Management contract or a compensatory plan or arrangement required to be filed as an Exhibit pursuant to Item 15(b) of Form 10-K. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNDER ARMOUR, INC. | |||
By: | /s/ KEVIN A. PLANK | ||
Kevin A. Plank | |||
Chairman of the Board of Directors and Chief Executive Officer | |||
Dated: February 19, 2016
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
/s/ KEVIN A. PLANK | Chairman of the Board of Directors and Chief Executive Officer (principal executive officer) | |
Kevin A. Plank | ||
/s/ LAWRENCE P. MOLLOY | Chief Financial Officer (principal accounting and financial officer) | |
Lawrence P. Molloy | ||
/s/ BYRON K. ADAMS, JR. | Director | |
Byron K. Adams, Jr. | ||
/s/ GEORGE W. BODENHEIMER | Director | |
George W. Bodenheimer | ||
/s/ DOUGLAS E. COLTHARP | Director | |
Douglas E. Coltharp | ||
/s/ ANTHONY W. DEERING | Director | |
Anthony W. Deering | ||
/s/ KAREN W. KATZ | Director | |
Karen W. Katz | ||
/s/ A.B. KRONGARD | Director | |
A.B. Krongard | ||
/s/ WILLIAM R. MCDERMOTT | Director | |
William R. McDermott | ||
/s/ ERIC T. OLSON | Director | |
Eric T. Olson | ||
/s/ HARVEY L. SANDERS | Director | |
Harvey L. Sanders | ||
Dated: February 19, 2016
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Schedule II
Valuation and Qualifying Accounts
(In thousands)
Description | Balance at Beginning of Year | Charged to Costs and Expenses | Write-Offs Net of Recoveries | Balance at End of Year | ||||||||||||
Allowance for doubtful accounts | ||||||||||||||||
For the year ended December 31, 2015 | $ | 3,693 | $ | 2,951 | $ | (714 | ) | $ | 5,930 | |||||||
For the year ended December 31, 2014 | 2,938 | 1,028 | (273 | ) | 3,693 | |||||||||||
For the year ended December 31, 2013 | 3,286 | 210 | (558 | ) | 2,938 | |||||||||||
Sales returns and allowances | ||||||||||||||||
For the year ended December 31, 2015 | $ | 52,973 | $ | 145,828 | $ | (126,186 | ) | $ | 72,615 | |||||||
For the year ended December 31, 2014 | 34,102 | 156,791 | (137,920 | ) | 52,973 | |||||||||||
For the year ended December 31, 2013 | 32,919 | 135,739 | (134,556 | ) | 34,102 | |||||||||||
Deferred tax asset valuation allowance | ||||||||||||||||
For the year ended December 31, 2015 | $ | 15,550 | $ | 8,493 | $ | — | $ | 24,043 | ||||||||
For the year ended December 31, 2014 | 8,091 | 7,581 | (122 | ) | 15,550 | |||||||||||
For the year ended December 31, 2013 | 3,996 | 4,095 | — | 8,091 | ||||||||||||
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Exhibit 10.04
CHANGE IN CONTROL SEVERANCE AGREEMENT
This CHANGE IN CONTROL SEVERANCE AGREEMENT (this “Agreement”) is made as of the __ day of ___________, __________, between Under Armour, Inc., a corporation organized under the laws of the State of Maryland (together with its affiliates, the “Company”), and _______________ (“Executive”).
WITNESSETH THAT:
WHEREAS, should Under Armour, Inc. or shareholders of Under Armour, Inc. receive any proposal from a third person regarding a possible Change in Control, the Board of Directors of Under Armour, Inc. (the “Board”) believes it is important that the Company be able to rely upon the Executive to continue in his position until after such Change in Control and that Under Armour, Inc. be able to receive and rely upon the Executive’s advice, if requested, as to the best interest of Under Armour, Inc. and its shareholders in connection with any such Change in Control, without concern that the Executive might be distracted or his advice affected by the personal uncertainties and risks created by such a Change in Control.
NOW THEREFORE, in order to provide an incentive to the Executive for the continued dedication of Executive and the availability of his advice and counsel notwithstanding the possibility of a Change in Control, and to encourage Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and Executive hereby agree as follows:
1. Definitions.
(i) “AAA” shall have the meaning set forth in Section 7(ii).
(ii) “Accrued Obligations” shall mean the sum of the following: (a) the full base salary earned by the Executive through the Termination Date and unpaid as of the Termination Date, calculated at the highest rate of base salary in effect at any time during the twelve (12) months immediately preceding the Termination Date; (b) the amount of any base salary attributable to vacation earned by the Executive but not taken before the Termination Date; (c) any Bonus accrued to the Executive with respect to the calendar year preceding the termination of employment and unpaid as of the Termination Date; (d) a pro-rata Bonus for the year in which the Change in Control occurs, equal to the Bonus times a fraction, the numerator of which is the number of days during the calendar year preceding the Termination Date and the denominator of which is 365; and (e) all other amounts earned by the Executive and unpaid as of the Termination Date.
1
(iii) “Arbitration Rules” shall have the meaning set forth in Section 7(ii).
(iv) “Bonus” shall mean the greater of: (a) the annual average of the Executive’s bonus paid to the Executive with respect to the two (2) calendar years prior to Executive’s termination of employment with the Company or (b) the Executive’s target bonus for the year of such termination of employment.
(v) “Cause” shall mean the occurrence of any of the following: (a) the Executive’s material misconduct or neglect in the performance of his duties; (b) the Executive’s commission of any felony; offense punishable by imprisonment in a state or federal penitentiary; any offense, civil or criminal, involving material dishonesty, fraud, moral turpitude or immoral conduct; or any crime of sufficient import to potentially discredit or adversely affect the Company’s ability to conduct its business in the normal course; (c) the Executive's material breach of the Company's written Code of Conduct, as in effect from time to time; (d) the Executive's commission of any act that results in severe harm to the Company excluding any act taken by the Executive in good faith that he reasonably believed was in the best interests of the Company; or (e) the Executive’s material breach of this Agreement, including, but not limited to, a material breach of the Employee Confidentiality, Non-Competition and Non-Solicitation Agreement attached hereto as Attachment A.
(vi) “Change in Control” shall mean the occurrence of any of the following:
a. Any ‘person’ (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the ‘beneficial owner’ (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of Under Armour, Inc. representing fifty percent (50%) or more of the total voting power represented by Under Armour, Inc.’s then-outstanding voting securities, provided, however that a Change in Control shall not be deemed to occur if an employee benefit plan (or a trust forming a part thereof) maintained by Under Armour, Inc., and/or Kevin Plank and/or his immediate family members, directly or indirectly, become the beneficial owner, of more than fifty percent (50%) of the then-outstanding voting securities of Under Armour, Inc. after such acquisition;
b. A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. ‘Incumbent Directors’ shall mean directors who either (A) are directors of Under Armour, Inc. as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or
2
threatened proxy contest relating to the election of directors to Under Armour, Inc.);
c. The consummation of a merger or consolidation of Under Armour, Inc. with any other corporation, other than a merger or consolidation which would result in (a) the voting securities of Under Armour, Inc. outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of Under Armour, Inc. or such surviving entity outstanding immediately after such merger or consolidation in substantially the same proportion as prior to such merger or consolidation; or (b) the directors of Under Armour, Inc. immediately prior thereto continuing to represent at least fifty percent (50%) of the directors of Under Armour, Inc. or such surviving entity immediately after such merger or consolidation; or
d. | The consummation of the sale or disposition by Under Armour, Inc. of all or substantially all of Under Armour, Inc.’s assets. |
(vii) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
(viii) “Contract Period” shall mean the period starting on the date hereof and ending on December 31, 2016. The Company, in its sole discretion, shall have the right to extend the Contract Period.
(ix) “Disability” shall mean a physical or mental incapacity of the Executive which entitles the Executive to benefits at least as favorable as the benefits provided under the long term disability plan applicable to and maintained by the Company as in effect immediately prior to the Change in Control.
(x) “Good Reason,” shall mean the occurrence of any of the following events: (a) a diminishment in the scope of the Executive’s duties or responsibilities with the Company; (b) a reduction in the Executive’s current base salary, bonus opportunity or a material reduction in the aggregate benefits or perquisites; (c) a requirement that the Executive relocate more than fifty (50) miles from his primary place of business as of the date of a Change in Control, or a significant increase in required travel as part of the Executive’s duties and responsibilities with the Company; (d) a failure by any successor to the Company to assume this Agreement pursuant to Section 5(a) hereof; or (e) a material breach by the Company of any of the terms of this Agreement.
(xi) “Protection Period” shall mean the twelve (12) month period following a Change in Control.
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(xii) “Termination Date” shall mean the effective date as provided hereunder of the termination of Executive’s Employment.
(xiii) “Without Cause” shall mean the termination of the Executive’s employment by the Company other than for Cause, death or Disability.
2. Application of this Agreement. This Agreement shall apply if and only if: (a) the Executive’s employment terminates during the Protection Period and (b) the Change in Control occurs during the Contract Period. This Agreement shall not apply to any termination of the Executive’s employment other than what is described in the preceding sentence. Notwithstanding the foregoing, if three (3) months prior to the date on which a Change in Control occurs, the Executive’s employment with the Company is terminated by the Company other than by reason of the Executive’s death, Disability or circumstances that would constitute Cause or the terms and conditions of the Executive’s employment are adversely changed in a manner which would constitute grounds for a termination of employment by the Executive for Good Reason, and it is reasonably demonstrated that such termination of employment or adverse change (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change in Control, or (ii) otherwise arose in connection with or in anticipation of the Change in Control, then for all purposes of this Agreement such termination of employment shall be deemed to have occurred during the Protection Period and shall be considered either termination of the Executive’s employment Without Cause by the Company or termination of the Executive’s employment by the Executive for Good Reason, as the case may be.
3. Termination of Employment of Executive. The Executive’s employment may be terminated by following the procedures specified in this Section 3.
(i) Cause. The Executive may not be terminated for Cause unless and until a notice of intent to terminate the Executive’s employment for Cause, specifying the particulars of the conduct of the Executive forming the basis for such termination, is given to the Executive by the Company and, subsequently, a majority of the Board finds, after reasonable notice to the Executive (but in no event less than fifteen (15) days prior notice) and an opportunity for the Executive and his counsel to be heard by the Board, that termination of the Executive’s employment for Cause is justified. Termination of the Executive’s employment for Cause shall become effective after such finding has been made by the Board and five (5) business days after the Board gives to the Executive notice thereof, specifying in detail the particulars of the conduct of the Executive found by the Board to justify termination for Cause. It shall not constitute Good Reason to the Executive to the extent the Executive is relieved of any duties and responsibilities during the period the Board is considering whether such termination for Cause is justified.
(ii) Disability. Termination of the Executive’s employment for Disability shall become effective thirty (30) days after a notice of intent to terminate the Executive’s employment, specifying Disability as the basis for such termination, is given to the Executive by the Company.
4
(iii) Termination Without Cause. At all times, the Company shall have the right by notice to the Executive of the Company’s intention to terminate Executive’s employment Without Cause. Termination of Executive’s employment by the Company Without Cause shall become effective immediately upon the receipt by the Executive of such notice.
(iv) Voluntary Termination by the Executive. The Executive may terminate his employment with the Company by giving a notice of voluntary termination to the Company, and if such termination is for Good Reason, such notice shall set forth in reasonable detail the acts and circumstances claimed by the Executive to constitute Good Reason. Termination of the Executive’s employment by the Executive without Good Reason shall be effective five (5) business days after the Executive gives notice thereof to the Company. The Company shall have twenty (20) days after receipt of such notice from the Executive of claimed Good Reason to cure any Good Reason. If the Company is unable to cure the Good Reason during such cure period, termination of the Executive’s employment by the Executive for Good Reason shall be effective five (5) business days after the expiration of such cure period.
(v) Death. Termination of the Executive’s employment for death shall be effective on the date of the Executive’s death.
4. Benefits Upon Termination of Employment.
(i) Termination Without Cause or by the Executive for Good Reason. Upon the termination of the employment of Executive Without Cause by the Company or by the Executive for Good Reason, the Company shall pay or provide to the Executive:
(a) a lump sum payment equal to the sum of the following:
1. the Accrued Obligations; and
2. an amount equal to the sum of the annual base salary of the Executive at the highest rate in effect during the Protection Period and the Bonus.
The payment described in this Section 4(i)(a)(1) shall be made by the Company not later than the earlier of the date required by applicable law or five (5) days following the Termination Date. The payment described in Section 4(i)(a)(2) shall be paid in accordance with Section 4(vi). Executive shall not be required to mitigate the amount of the payment provided for in this Section 4(i)(a) by seeking other employment or otherwise. The amount of the payment provided for in this Section 4(i)(a) shall not be reduced by any compensation or other amounts paid to or earned by Executive as the result of employment with another employer after the date on which his employment with the Company terminates or otherwise.
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(b) the continuance of the Executive’s life, medical, dental, prescription drug and long and short-term disability plans, programs or arrangements, whether group or individual, of the Company in which the Executive was entitled to participate at any time during the twelve (12) month period prior to the Termination Date until the earliest to occur of (1) one (1) year after the Termination Date; (2) the Executive’s death (provided that compensation and benefits payable to his beneficiaries shall not terminate upon his death); or (3) with respect to any particular plan, program or arrangement, the date the Executive is afforded a comparable benefit at a comparable cost to the Executive by a subsequent employer.
(ii) Cobra Continuation Coverage. Upon the expiration of the provision of benefits in Section 4(i)(b), the Executive and his dependents shall be entitled to exercise such rights as they may have under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”).
(iii) Death and Disability. Upon a termination of the Executive’s employment on account of the Executive’s death or Disability, the Company shall pay to the Executive or his estate or beneficiary (in the event of his death), the Accrued Obligations within five (5) days of the Termination Date and the Company shall provide to the Executive or his estate or beneficiary (in the event of his death), such benefits that the Company provides in the event of an employee’s death or Disability.
(iv) Cause, Voluntary Termination by the Executive. Upon the termination of the Executive’s employment by the Company for Cause or by the Executive without Good Reason, the Company shall pay to the Executive the Accrued Obligations within five (5) days of the Termination Date.
(v) Effect of Stock Options and Other Equity Awards. The terms and conditions of the Executive’s award agreements or employment agreement (as applicable to such Executive) shall govern the effect of termination of the Executive’s employment on equity awards granted by the Company and held by the Executive as of the Termination Date.
(vi) Conditions to Receiving Benefits. The benefits described in Sections 4(i)(a)(2) and 4(i)(b) shall be subject to the Executive’s execution of the Employee Confidentiality, Non-Competition, and Non-Solicitation Agreement attached hereto as Attachment A, and the benefits described in Sections 4(i)(a)(2) and 4(i)(b) will be paid within the sixty (60) day period following the Termination Date provided the Executive executes the release attached hereto as Attachment B, and such release becomes effective and irrevocable within such sixty (60) day period and provided, further, that if such sixty (60) day period begins in one calendar year and ends in a second calendar year, the payment will be made in the second calendar year.
(vii) No Further Payments due to Executive. Except as provided in this Section 4, the Company shall have no obligation to make any other payment, in the nature of severance or termination pay.
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(viii) Exception to Benefit Entitlements. The Executive shall not receive the payments and benefits under this Agreement if the Executive has executed an individually negotiated employment contract, agreement or offer letter with the Company relating to severance benefits that is in effect on the Termination Date, unless the Executive waives any such severance benefits under such contract, agreement or letter.
(viii) Retirement Payments. No amounts paid pursuant to this Agreement will constitute compensation for any purpose under any retirement plan or other employee benefit plan, program, arrangement or agreement of the Company or any of its affiliates, unless such plan, program, arrangement or agreement specifically so provides.
5. Successors; Binding Agreement.
(a) This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the business and/or assets of Under Armour, Inc. Additionally, Under Armour, Inc. shall require any such successor expressly to agree to assume and to assume of the obligations of the Company under this Agreement upon or prior to such succession taking place. A copy of such assumption and agreement shall be delivered to the Executive promptly after its execution by the successor.
(b) This Agreement is personal to the Executive and the Executive may not assign or transfer any part of his rights or duties hereunder, or any payments due to the Executive hereunder, to any other person, except that this Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees or beneficiaries. No payment pursuant to any will or the laws of descent and distribution shall be made hereunder unless the Company shall have been furnished with a copy of such will and/or such other evidence as the Board may deem necessary to establish the validity of the payment.
6. Modification; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by Executive and by an officer of the Company thereunto expressly authorized by the Board. Waiver by any party of any breach of or failure to comply with any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of, or failure to comply with, any other provision of this Agreement.
7. Arbitration of Disputes.
(i) Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or the interpretation or validity hereof shall be settled exclusively and finally by arbitration. It is specifically understood and agreed that any such disagreement, dispute or controversy which cannot be resolved between the parties, including without limitation any matter relating to interpretation of this Agreement, may
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be submitted to arbitration irrespective of the magnitude thereof, the amount in controversy or whether such disagreement, dispute or controversy would otherwise be considered justiciable or ripe for resolution by a court or arbitral tribunal.
(ii) The arbitration shall be conducted in accordance with the Commercial Arbitration Rules (the “Arbitration Rules”) of the American Arbitration Association (“AAA”).
(iii) The arbitral tribunal shall consist of one arbitrator. The parties to the arbitration jointly shall directly appoint such arbitrator within thirty (30) days of initiation of the arbitration. If the parties shall fail to appoint such arbitrator as provided above, such arbitrator shall be appointed by the AAA as provided in the Arbitration Rules and shall be a person who (a) maintains his principal place of business within thirty (30) miles of the City of Baltimore and (b) has substantial experience in executive compensation. The parties shall each pay an equal portion of the fees, if any, and expenses of such arbitrator.
(iv) The arbitration shall be conducted within thirty (30) miles of the City of Baltimore or in such other city in the United States of America as the parties to the dispute may designate by mutual written consent.
(v) At any oral hearing of evidence in connection with the arbitration, each party thereto or its legal counsel shall have the right to examine its witnesses and to cross-examine the witnesses of any opposing party. No evidence of any witness shall be presented unless the opposing party or parties shall have the opportunity to cross-examine such witness, except as the parties to the dispute otherwise agree in writing or except under extraordinary circumstances where the interests of justice require a different procedure.
(vi) Any decision or award of the arbitral tribunal shall be final and binding upon the parties to the arbitration proceeding. The parties hereto hereby waive to the extent permitted by law any rights to appeal or to seek review of such award by any court or tribunal. The parties hereto agree that the arbitral award may be enforced against the parties to the arbitration proceeding or their assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction.
(vii) Nothing herein contained shall be deemed to give the arbitral tribunal any authority, power, or right to alter, change, amend, modify, add to or subtract from any of the provisions of this Agreement.
(viii) If any dispute is not resolved within sixty (60) days from the date of the commencement of an arbitration, then the Company shall, at its option, elect to pay Executive either (a) within five (5) days after the end of such sixty (60)-day period, the amount or amounts which would have been payable to Executive had there been no dispute, subject to reimbursement to the extent consistent with the final disposition of the dispute or (b) following final disposition of the dispute, the amount determined in such final disposition to have been payable, together with Interest from the date when such sums were originally payable to the date of actual payment. For purpose of this
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paragraph (viii) the term “Interest” means interest at a rate equal to the Company’s borrowing rate per annum, compounded monthly.
(ix) Notwithstanding anything to the contrary in this Agreement, the arbitration provisions set forth in this Section 7 shall be governed exclusively by the Federal Arbitration Act, Title 9, United States Code.
(x) If the Executive prevails in the arbitration concerning any substantial matter of this Agreement or the rights and duties of any party hereunder, in addition to such other relief as may be granted, the Company shall reimburse the Executive for the Executive’s reasonable attorneys’ fees incurred by reason of such arbitration to the extent the attorneys’ fees relate to such substantial matter, and any such reimbursement payments shall be made no later than March 15 of the year following the year in which such arbitration award is final.
8. Notice. All notices, requests, demands and other communications required or permitted to be given by either party to the other party to this Agreement (including, without limitation, any notice of termination of employment and any notice of an intention to arbitrate) shall be in writing and shall be deemed to have been duly given when delivered personally or received by certified or registered mail, return receipt requested, postage prepaid, at the address of the other party, as follows:
If to the Company, to: | If to the Executive, to: | |
Under Armour, Inc. | ||
Attn: Vice President, | ||
Human Resources | ||
1020 Hull Street | ||
Baltimore, Maryland 21230 | ||
With a copy to: | With a copy to: | |
Under Armour, Inc. | ||
Attn: Legal Department | ||
1020 Hull Street | ||
Baltimore, Maryland 21230 | ||
Either party hereto may change its address for purposes of this Section 8 by giving fifteen (15) days’ prior notice to the other party hereto.
9. Severability. If any term or provision of this Agreement or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
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10. Headings. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of this Agreement.
11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original.
12. Governing Law. This Agreement has been executed and delivered in the State of Maryland and shall in all respects be governed by, and construed and enforced in accordance with, the laws of the State of Maryland without reference to its principles of conflicts of law.
13. Certain Withholdings. The Company shall withhold from any amounts payable to Executive hereunder all federal, state, city and other taxes and withholdings that the Company determines are required to be withheld pursuant to any applicable law or regulation.
14. Entire Agreement. This Agreement supersedes any and all other oral or written agreements heretofore made relating to amounts payable pursuant to a change in control and constitutes the entire agreement relating to such change in control. Any existing employment agreement is hereby superseded only with regard to amounts payable pursuant to a change in control.
15. Code Section 409A. To the extent that the right to any payment under this Agreement provides for deferred compensation within the meaning of Section 409A of the Code that is not exempt from Code Section 409A as involuntary separation pay or a short-term deferral (or otherwise), a termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for any payment or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision, references to a “termination,” “termination of employment,” or like terms shall mean “separation from service.” In addition, notwithstanding any provision to the contrary in this agreement, if Executive is deemed on the date of Executive’s “separation from service” (within the meaning of Code Section 409A) to be a “specified employee” (within the meaning of Code Section 409A), then with regard to any payment under this Agreement that is required to be delayed pursuant to Code Section 409A(a)(2)(B), such payment shall not be made prior to the later of (1) June 30, 2012, or (2) the earlier of (a) the expiration of the six (6) month period measured from the date of Executive’s “separation from service” and (b) the date of Executive’s death. Each payment under this Agreement shall be treated as a separate payment for purposes of Code Section 409A. In addition, to the extent that any reimbursement or in-kind benefit under this Agreement or under any other reimbursement or in-kind benefit plan or arrangement in which Executive participates during the term of Executive’s employment under this Agreement or thereafter provides for a “deferral of compensation” within the meaning of Section 409A of the Code, (i) the amount eligible for reimbursement or in-kind benefit in one calendar year may not affect the amount eligible for reimbursement or in-kind benefit in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the
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amount that may be reimbursed or paid), (ii) the right to reimbursement or an in-kind benefit is not subject to liquidation or exchange for another benefit, and (iii) subject to any shorter time periods provided herein, any such reimbursement of an expense must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
UNDER ARMOUR, INC. | ||
By: John Stanton | By: | |
Title | Title | |
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ATTACHMENT A
EMPLOYEE CONFIDENTIALITY, NON-COMPETITION, AND
NON-SOLICITATION AGREEMENT
[Attachment A, the Form of Employee Confidentiality, Non-Competition and Non-Solicitation Agreement by and between certain executives and the Company, has been separately filed with the Company’s Annual Report on 10-K for the year ended December 31, 2013, as Exhibit 10.14]
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ATTACHMENT B
RELEASE AGREEMENT
I understand and agree completely to the terms set forth in the Under Armour, Inc Change in Control Severance Agreement (the “Agreement”).
I understand that this Release, together with the Agreement, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby confirm my obligations under the Company’s Employee Confidentiality, Non-Competition and Non-Solicitation Agreement.
Except as otherwise set forth in this Release, I hereby generally and completely release the Company and its parents, subsidiaries, successors, predecessors and affiliates, and its and their partners, members, directors, officers, employees, stockholders, shareholders, agents, attorneys, predecessors, insurers, affiliates and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date I sign this Release. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (b) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company (other than compensation and benefits accrued before any termination of employment or any rights you may have under stock option grants); (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Age Discrimination in Employment Act (as amended), and the federal Employee Retirement Income Security Act of 1974 (as amended).
I understand that I may consider whether to agree to the terms contained herein for a period of twenty-one days after the date hereof. Accordingly, I will sign and return the acknowledgment copy of this Release to acknowledge my understanding of and agreement with the foregoing. Prior to my signing this Release, I was advised to consult with an attorney.
This Release will become effective, enforceable and irrevocable seven days after the date on which I sign it. During the seven-day period prior to this date, I may revoke this Release to accept the terms hereof by indicating in writing to the Company my intention to revoke. I understand that if I exercise my right to revoke hereunder, I will
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forfeit my right to receive any of the special benefits offered to me under the Agreement, and to the extent such payments have already been made, I agree that I will immediately reimburse the Company for the amounts of such payment.
By: | ||
Date: | ||
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Exhibit 10.07
RESTRICTED STOCK UNIT GRANT AGREEMENT
THIS AGREEMENT, made as of this ____ day of ____________________, 2016, (the “Agreement”) between UNDER ARMOUR, INC. (the “Company”) and _____________________________ (the “Grantee”).
WHEREAS, the Company has adopted the Second Amended and Restated 2005 Omnibus Long‑Term Incentive Plan, as amended (the “Plan”), which has been delivered or made available to Grantee, to promote the interests of the Company and its stockholders by providing the Company’s key employees and others with an appropriate incentive to encourage them to continue in the employ of the Company and to improve the growth and profitability of the Company; and
WHEREAS, the Plan provides for the Grant to Grantees in the Plan of restricted share units for shares of Stock of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:
1.Investment. The Grantee represents that the Restricted Stock Units (as defined herein) are being acquired for investment and not with a view toward the distribution thereof.
2.Grant of Restricted Stock Units. Pursuant to, and subject to, the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Grantee an Award of Restricted Stock Units for ________ shares of Stock of the Company (collectively, the “Restricted Stock Units”). The Purchase Price for the Restricted Stock Units shall be paid by the Grantee’s services to the Company.
3.Grant Date. The Grant Date of the Restricted Stock Units hereby granted is ____________, 2016.
4.Incorporation of the Plan. All terms, conditions and restrictions of the Plan are incorporated herein and made part hereof as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of this Agreement, as interpreted by the Board, or a Committee thereof, shall govern. Unless otherwise indicated herein, all capitalized terms used herein shall have the meanings given to such terms in the Plan.
5.Vesting and Delivery Date. The Restricted Stock Units shall vest in ____ equal annual installments on each ______ beginning _________, ______; provided that (i) the Grantee remains continuously employed by the Company through each such applicable vesting date, and (ii) the Grantee has duly executed this Agreement prior to the first such vesting date. Notwithstanding the foregoing, in the event that the Grantee’s employment is terminated on account of the Grantee’s death or Disability at any time, all unvested Restricted Stock Units not previously forfeited shall immediately vest on such date of termination.
On the first business day after each vesting date, the Company shall deliver to Grantee the shares of stock to which the Restricted Stock Units relate.
6.Change in Control.
(a)In the event of a Change in Control in which the Restricted Stock Units will not be continued, assumed or substituted with Substitute Awards (as defined below), all of the Restricted Stock Units not otherwise forfeited shall vest immediately on the day immediately prior to the date of the Change in Control.
(b)In the event of a Change in Control following which the Restricted Stock Units will be continued, assumed or substituted with Substitute Awards, any Substitute Awards shall vest in equal annual installments as set forth in Section 5.
(c)If the Restricted Stock Units are substituted with Substitute Awards as set forth in subclause (b) of this Section 6, and within 12 months following the Change in Control the Grantee is terminated by the Successor (or an affiliate thereof) without Cause or resigns for Good Reason, the Substitute Awards shall immediately vest upon such termination or resignation.
(d)On the first business day after each vesting date set forth in Sections 6(a), (b) or (c), as applicable, the Company shall deliver to Grantee the shares of stock to which the Restricted Stock Units or Substitute Awards relate.
(e)The following definitions shall apply to this Section 6:
i.“Cause” shall mean the occurrence of any of the following: (a) the Grantee’s material misconduct or neglect in the performance of his or her duties; (b) the Grantee’s commission of any felony; offense punishable by imprisonment in a state or federal penitentiary; any offense, civil or criminal, involving material dishonesty, fraud, moral turpitude or immoral conduct; or any crime of sufficient import to potentially discredit or adversely affect the Company’s ability to conduct its business in the normal course; (c) the Grantee’s material breach of the Company’s written Code of Conduct, as in effect from time to time; (d) the Grantee’s commission of any act that results in severe harm to the Company excluding any act taken by the Grantee in good faith that he or she reasonably believed was in the best interests of the Company; or (e) the Grantee’s material breach of the Employee Confidentiality, Non-Competition and Non-Solicitation Agreement by and between Grantee and the Company (the “Confidentiality, Non-Compete and Non-Solicitation Agreement”) attached hereto as Attachment A. However, none of the foregoing events or conditions will constitute Cause unless the Company provides Grantee with written notice of the event or condition and thirty (30) days to cure such event or condition (if curable) and the event or condition is not cured within such 30-day period.
ii.“Good Reason” shall mean the occurrence of any of the following events: (a) a diminishment in the scope of the Grantee’s duties or responsibilities with the Company; (b) a reduction in the Grantee’s current base salary, bonus opportunity or a material reduction in the aggregate benefits or perquisites; or (c) a requirement that the Grantee relocate more than fifty (50) miles from his or her primary place of business as of the date of a Change in Control, or a significant increase in required travel as part of the Grantee’s duties and responsibilities with the Company. However, none of the foregoing events or conditions will constitute Good Reason unless (i) Grantee provides the Company with written objection to the event or condition within ninety (90) days following the occurrence thereof, (ii) the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving such written objection, and (iii) Grantee resigns his or her employment within thirty (30) days following the expiration of such cure period.
iii.An award will qualify as a “Substitute Award” if it is assumed, substituted or replaced by the Successor with awards that, solely in the discretion of the Compensation Committee of the Board, preserves the existing value of the outstanding Restricted Stock Units at the time of the Change in Control and provides vesting and payout terms that are at least as favorable to Grantee as the vesting and payout terms applicable to the Restricted Stock Units.
iv.“Successor” shall mean the continuing or successor organization, as the case may be, following the Change in Control.
7.Forfeiture. Subject to the provisions of the Plan and Sections 5 and 6 of this Agreement, with respect to the Restricted Stock Units which have not become vested on the date the Grantee’s employment is terminated, the Award of Restricted Stock Units shall expire and such unvested Restricted Stock Units shall immediately be forfeited on such date.
8. Employee Confidentiality, Non-Competition and Non-Solicitation Agreement. As a condition to the grant of the Restricted Stock Units, Grantee shall have executed and become a party to the Confidentiality, Non-Compete and Non-Solicitation Agreement.
9.No Shareholder Rights. Grantee does not have any rights of a shareholder with respect to the Restricted Stock Units. No dividend equivalents will be earned or paid with regard to the Restricted Stock Units.
10.Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party hereto upon any breach or default of any party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party or any provisions or conditions of this Agreement, shall be in writing and shall be effective only to the extent specifically set forth in such writing.
11.Integration. This Agreement and the Plan contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and in the Plan. This Agreement and the Plan supersede all prior agreements and understandings between the parties with respect to its subject matter.
12.Withholding Taxes. Grantee agrees, as a condition of this grant, that Grantee will make acceptable arrangements to pay any withholding or other taxes that may be due as a result of vesting in Restricted Stock Units or delivery of shares acquired under this grant. In the event that the Company determines that any federal, state, local, municipal or foreign tax or withholding payment is required relating to the vesting in Restricted Stock Units or delivery of shares arising from this grant, the Company shall have the right to require such payments from Grantee in the form and manner as provided in the Plan. The Grantee authorizes the Company at its discretion to satisfy its withholding obligations, if any, by one or a combination of the following:
(a) | withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company; or |
(b) | withholding from proceeds of the sale of shares of Stock acquired upon settlement of the Restricted Stock Units either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); or |
(c) | withholding in shares of Stock to be issued upon settlement of the Restricted Stock Units; or |
(d) | by any other method deemed by the Company to comply with applicable laws. |
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13.Data Privacy. In order to administer the Plan, the Company may process personal data about Grantee. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about the Grantee such as home address and business address and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan.
By accepting this grant, Grantee gives explicit consent to the Company to process any such personal data. Grantee also gives explicit consent to the Company to transfer any such personal data outside the country in which Grantee works or is employed, including, with respect to non-U.S. resident Grantees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer the Plan.
14.Electronic Delivery. The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this grant Grantee agrees that the Company may deliver the Plan prospectus and the Company’s annual report to Grantee in an electronic format. If at any time Grantee would prefer to receive paper copies of these documents, as Grantee is entitled to receive, the Company would be pleased to provide copies. Grantee should contact _____________________________ to request paper copies of these documents.
15.Counterparts; Electronic Signature. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. This Agreement may be signed by the Company through application of an authorized officer’s signature, and may be signed by Grantee through an electronic signature.
16.Governing Law; Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Maryland, without regard to the provisions governing conflict of laws. For purposes of litigating any dispute that arises under this Award of Restricted Stock Units or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Maryland, and agree that such litigation will be conducted in the jurisdiction and venue of the United States District Court for the District of Maryland or, in the event such jurisdiction is not available, any of the appropriate courts of the State of Maryland, and no other courts.
17.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
18.Grantee Acknowledgment. The Grantee hereby acknowledges receipt of a copy of the Plan. The Grantee hereby acknowledges that all decisions, determinations and interpretations of the Board, or a Committee thereof, in respect of the Plan, this Agreement and this Award of Restricted Stock Units shall be final and conclusive.
The Company has caused this Agreement to be duly executed by its duly authorized officer and said Grantee has hereunto signed this Agreement on the Grantee’s own behalf, thereby representing that the Grantee has carefully read and understands this Agreement and the Plan as of the day and year first written above.
UNDER ARMOUR, INC. | |||
By: | |||
GRANTEE | |||
Attachment A
[Attachment A, the Form of Employee Confidentiality, Non-Competition and Non-Solicitation Agreement by and between certain executives and the Company, has been separately filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as Exhibit 10.14]
Exhibit 10.08
OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this ____ day of ____________________, 2016, (the “Agreement”) between UNDER ARMOUR, INC. (the “Company”) and _____________________________ (the “Grantee”).
WHEREAS, the Company has adopted the Second Amended and Restated 2005 Omnibus Long‑Term Incentive Plan as amended (the “Plan”), which has been delivered or made available to Grantee, to promote the interests of the Company and its stockholders by providing the Company’s key employees and others with an appropriate incentive to encourage them to continue in the employ of the Company and to improve the growth and profitability of the Company; and
WHEREAS, the Plan provides for the Grant to Grantees in the Plan of Options to purchase Stock of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:
1.Grant of Options. Pursuant to, and subject to, the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Grantee a non-qualified stock option (the “Option”) with respect to ________ shares of Stock of the Company.
2.Grant Date. The Grant Date of the Option hereby granted is ____________, 2016.
3.Incorporation of the Plan. All terms, conditions and restrictions of the Plan are incorporated herein and made part hereof as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of this Agreement, as interpreted by the Board, or a Committee thereof, shall govern. Unless otherwise indicated herein, all capitalized terms used herein shall have the meanings given to such terms in the Plan.
4.Option Price. The exercise price per share of Stock underlying the Option granted hereby is $______________.
5.Vesting. Except as otherwise provided by Section 5(e), the Option shall vest and become exercisable as follows provided the Grantee remains employed by the Company on each such vesting date:
(a) Below Threshold Level: All of the Options shall be forfeited if the combined Operating Income for the Company for 2016 and 2017 is less than $___________; OR
(b) Threshold Level: Forty percent (40%) of the Options (rounded up to the nearest whole share) shall be earned and eligible to vest if the combined Operating Income for the Company for 2016 and 2017 is equal to or greater than $___________ but less than $___________, with such number of Options vesting in three equal annual installments on February 15, 2018 (or if later, the date of the Compensation Committee Certification), February 15, 2019 and February 15, 2020, with the first two installments rounded up or down to the nearest whole share and the third installment including the remaining shares (and the remaining sixty percent (60%) of the Options shall be forfeited); OR
(c) Target Level: Eighty percent (80%) of the Options (rounded up to the nearest whole share) shall be earned and eligible to vest if the combined Operating Income for the Company for 2016 and 2017 is equal to or greater than $___________ but less than $___________, with such number of Options vesting in three equal annual installments on February 15, 2018 (or if later, the date of the Compensation Committee Certification), February 15, 2019 and February 15, 2020, with the first two
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installments rounded up or down to the nearest whole share and the third installment including the remaining shares (and the remaining twenty percent (20%) of the Options shall be forfeited); OR
(d) Stretch Level: All of the Options shall be earned and eligible to vest if the combined Operating Income for the Company for 2016 and 2017 is equal to or greater than $___________, with such number of Options vesting in three equal annual installments on February 15, 2018 (or if later, the date of the Compensation Committee Certification), February 15, 2019 and February 15, 2020, with the first two installments rounded up or down to the nearest whole share and the third installment including the remaining shares.
(e) Notwithstanding the foregoing, in the event that the Grantee’s employment is terminated upon the occurrence of an event specified in subclauses i. or ii. below, the Options shall vest on the dates specified below:
i. In the event of the Grantee’s death or Disability occurring prior to the Compensation Committee Certification, the Operating Income requirements of the Stretch Level in Section 5(d) of this Agreement shall be automatically deemed satisfied and all of the Options shall immediately vest on such date of termination, and the Options shall terminate one hundred eighty (180) days following such termination of employment; or
ii. In the event of the Grantee’s death or Disability occurring following the Compensation Committee Certification, all unvested Options not otherwise forfeited shall immediately vest on such date of termination, and the Options shall terminate one hundred eighty (180) days following such termination of employment.
(f) As used in this Section 5, the following terms have the following meanings:
i. “Compensation Committee Certification” shall mean the certification in writing of the achievement of the combined Operating Income for the Company by the Compensation Committee of the Board, which shall be required prior to the determination of the amount of the Options earned and eligible to vest pursuant to Section 5(a), (b), (c) or (d). Upon such certification, the forfeiture of any Options, as specified in Section 5, shall become immediately effective. Any unforfeited Options shall vest on the dates as specified in Section 5.
ii. “Operating Income” shall mean the Company’s income from operations as reported in the Company’s audited financial statements prepared in accordance with generally accepted accounting principles. The Compensation Committee’s evaluation of the Operating Income shall exclude the impact of any generally accepted accounting principle changes implemented after the date hereof. In addition, in accordance with Section 17.3.4 of the Plan, the following impacts of acquisitions shall be excluded from the Compensation Committee’s evaluation of the Operating Income: (A) goodwill impairment charges related to any acquired entity or business, (B) non-capitalized deal costs related to any acquisition completed during 2016 or 2017, and (C) the amortization of intangible assets acquired in any acquisition completed during 2016 or 2017. Further, in accordance with Section 17.3.4 of the Plan, the following items shall be excluded in the Compensation Committee’s evaluation of the Operating Income: (A) any costs, expenses or losses incurred by the Company during 2016 or 2017 as a result of any particular litigation, claim, judgment or settlement (a “Litigation Matter”) to the extent such costs, expenses or losses related to the particular Litigation Matter exceed $3.0 million, (B) any foreign exchange losses incurred by the Company during 2016 or 2017 arising from the impact of foreign currency translation (such losses, “Translation Costs”) but only to the extent that the Translation Costs result from foreign currency translation rates differing from those utilized by the Company at the time the Operating Income thresholds are established for purposes of this Agreement, and are greater than the Translation Costs
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that would have resulted under such currency translation rates, and (C) any impairment charges related to the write-down of the Company’s accounts receivable asset due to the bankruptcy of a customer of the Company to the extent such impairment charges exceed $3.0 million.
6.Change in Control.
(a)In the event of a Change in Control in which the Options will not be continued, assumed or substituted with Substitute Awards (as defined below), all of the Options not otherwise forfeited shall vest immediately on the day immediately prior to the date of the Change in Control; provided, however, that in the event of a Change in Control occurring prior to the Compensation Committee Certification, the Operating Income requirements of the Target Level in Section 5(c) of this Agreement shall automatically be deemed satisfied for purposes of determining the number of Options that will be forfeited and will vest.
(b)In the event of a Change in Control (i) occurring prior to the Compensation Committee Certification, and (ii) following which the Options will be continued, assumed or substituted with Substitute Awards, no Compensation Committee Certification shall be required and the Operating Income requirements of the Target Level in Section 5(c) of this Agreement shall be automatically deemed satisfied, with such number of Substitute Awards not otherwise forfeited vesting in three equal annual installments on the dates set forth in Section 5(c) of this Agreement, unless otherwise accelerated pursuant to Section 5(e).
(c)In the event of a Change in Control (i) occurring following the Compensation Committee Certification, and (ii) following which the Options will be continued, assumed or substituted with Substitute Awards, any Substitute Awards not otherwise forfeited shall vest in three equal annual installments on the dates set forth in Section 5(b), 5(c) or 5(d) of this Agreement, as applicable, unless otherwise accelerated pursuant to Section 5(e).
(d)If the Options are substituted with Substitute Awards as set forth in subclauses (b) or (c) of this Section 6, and within 12 months following the Change in Control the Grantee is terminated by the Successor (or an affiliate thereof) without Cause or resigns for Good Reason, the Substitute Awards not otherwise forfeited shall immediately vest upon such termination or resignation; provided, however, that if the Company determines that the Grantee is a “specified employee” within the meaning of Section 409A, then to the extent any payment under this Agreement on account of the Grantee’s separation from service would be considered nonqualified deferred compensation under Section 409A, such payment shall be delayed until the earlier of (i) the date that is six months and one day after the date of such separation from employment, or (ii) the date of Grantee’s death.
(e)The following definitions shall apply to this Section 6:
i.“Cause” shall mean the occurrence of any of the following: (a) the Grantee’s material misconduct or neglect in the performance of his or her duties; (b) the Grantee’s commission of any felony; offense punishable by imprisonment in a state or federal penitentiary; any offense, civil or criminal, involving material dishonesty, fraud, moral turpitude or immoral conduct; or any crime of sufficient import to potentially discredit or adversely affect the Company’s ability to conduct its business in the normal course; (c) the Grantee’s material breach of the Company’s written Code of Conduct, as in effect from time to time; or (d) the Grantee’s commission of any act that results in severe harm to the Company excluding any act taken by the Grantee in good faith that he or she reasonably believed was in the best interests of the Company. However, none of the foregoing events or conditions will constitute Cause unless the Company provides Grantee with written notice of the event or condition and thirty (30) days to cure such event or condition (if curable) and the event or condition is not cured within such 30-day period.
ii.“Good Reason” shall mean the occurrence of any of the following events: (a) a diminishment in the scope of the Grantee’s duties or responsibilities with the Company; (b) a
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reduction in the Grantee’s current base salary, bonus opportunity or a material reduction in the aggregate benefits or perquisites; or (c) a requirement that the Grantee relocate more than fifty (50) miles from his or her primary place of business as of the date of a Change in Control, or a significant increase in required travel as part of the Grantee’s duties and responsibilities with the Company. However, none of the foregoing events or conditions will constitute Good Reason unless (i) Grantee provides the Company with written objection to the event or condition within ninety (90) days following the occurrence thereof, (ii) the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving such written objection, and (iii) Grantee resigns his or her employment within thirty (30) days following the expiration of such cure period.
iii.An award will qualify as a “Substitute Award” if it is assumed, substituted or replaced by the Successor with awards that, solely in the discretion of the Compensation Committee of the Board, preserves the existing value of the outstanding Options at the time of the Change in Control and provides vesting and other material terms that are at least as favorable to Grantee as the vesting and other material terms applicable to the Options.
iv.“Successor” shall mean the continuing or successor organization, as the case may be, following the Change in Control.
7.Term. Unless the Option has earlier terminated pursuant to the provisions of this Agreement or the Plan, all unexercised portions of the Option shall terminate, and all rights to purchase shares of Stock thereunder shall cease, upon the expiration of ten years from the Grant Date.
8. Termination of Service.
(a) Termination of Service for Cause. Unless the Option has earlier terminated pursuant to the provisions of this Agreement or the Plan, all unexercised portions of the Option, whether vested or unvested, will terminate and be forfeited upon a termination of the Grantee’s Service for Cause (as defined above).
(b) Termination of Service other than for Cause, Death or Disability. Unless the Option has earlier terminated pursuant to the provisions of this Agreement or the Plan, the vested portion of the Option shall terminate thirty (30) days following the termination of the Grantee’s Service for any other reason other than for Cause, death or Disability.
(c) Post Termination Exercise. The Grantee (or the Grantee’s guardian, legal representative, executor, personal representative or the person to whom the Option shall have been transferred by will or the laws of descent and distribution, as the case may be) may exercise all or any part of the vested portion of the Option during such post termination of employment period, but not later than the end of the term of the Option. Any portion of the Option which is unvested as of the date of termination of service shall immediately terminate.
9. Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party hereto upon any breach or default of any party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party or any provisions or conditions of this Agreement, shall be in writing and shall be effective only to the extent specifically set forth in such writing.
10. Transferability of Options. During the lifetime of the Grantee, only the Grantee or a Family Member who received all or part of the Option, not for value, (or, in the event of legal incapacity or incompetence, the Grantee’s guardian or legal representative) may exercise the Option. The Option shall
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not be assignable or transferable by the Grantee other than to a Family Member, not for value, or by will or the laws of descent and distribution.
11.Manner of Exercise. The vested portion of the Option may be exercised, in whole or in part, by delivering written notice to the Stock Option Administrator designated by the Company. Such notice may be in electronic or other form as used by the Stock Option Administrator in its ordinary course of business and as may be amended from time to time, and shall:
(a) state the election to exercise the Option and the number of shares in respect of which it is being exercised;
(b) be accompanied by (i) cash, check, bank draft or money order in the amount of the Option Price payable to the order of the Stock Option Administrator designated by the Company; or (ii) certificates for shares of the Company’s Stock (together with duly executed stock powers) or other written authorization as may be required by the Company to transfer shares of such Stock to the Company, with an aggregate value equal to the Option Price of the Stock being acquired; or (iii) a combination of the consideration described in clauses (i) and (ii). Grantee may transfer Stock to pay the Option Price for Stock being acquired pursuant to clauses (ii) and (iii) above only if such transferred Stock (x) was acquired by the Grantee in open market transactions, (y) has been owned by Grantee for longer than six months, and (z) the Grantee is not subject to any other restrictions on transferring Company securities pursuant to Company policy or federal law.
In addition to the exercise methods described above and subject to other restrictions which may apply, the Grantee may exercise the Option through a procedure known as a “cashless exercise,” whereby the Grantee delivers to the Stock Option Administrator designated by the Company an irrevocable notice of exercise in exchange for the Company issuing shares of the Company’s Stock subject to the Option to a broker previously designated or approved by the Company, versus payment of the Option Price by the broker to the Company, to the extent permitted by the Committee or the Company and subject to such rules and procedures as the Committee or the Company may determine. Grantee may elect to satisfy any tax withholding obligations due upon exercise of the Option, in whole or in part, by delivering to the Company shares of Stock otherwise deliverable upon exercise of the Option as provided under the Plan.
12.Integration. This Agreement and the Plan contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and in the Plan. This Agreement and the Plan supersede all prior agreements and understandings between the parties with respect to its subject matter.
13.Data Privacy. In order to administer the Plan, the Company may process personal data about Grantee. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about the Grantee such as home address and business address and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan. By accepting this grant, Grantee gives explicit consent to the Company to process any such personal data. Grantee also gives explicit consent to the Company to transfer any such personal data outside the country in which Grantee works or is employed, including, with respect to non-U.S. resident Grantees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer the Plan.
14.Electronic Delivery. The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this grant Grantee agrees that the Company may deliver the Plan prospectus and the Company’s annual report to Grantee in an electronic format. If at any time Grantee would prefer to receive paper copies of these documents, as Grantee is entitled to receive, the Company would be pleased to provide copies. Grantee should contact _____________________________ to request paper copies of these documents.
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15.Counterparts; Electronic Signature. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. This Agreement may be signed by the Company through application of an authorized officer’s signature, and may be signed by Grantee through an electronic signature.
16.Governing Law; Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Maryland, without regard to the provisions governing conflict of laws. For purposes of litigating any dispute that arises under this Award of Options or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Maryland, and agree that such litigation will be conducted in the jurisdiction and venue of the United States District Court for the District of Maryland or, in the event such jurisdiction is not available, any of the appropriate courts of the State of Maryland, and no other courts.
17.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
18.Grantee Acknowledgment. The Grantee hereby acknowledges receipt of a copy of the Plan. The Grantee hereby acknowledges that all decisions, determinations and interpretations of the Board, or a Committee thereof, in respect of the Plan, this Agreement and this Award of Options shall be final and conclusive.
The Company has caused this Agreement to be duly executed by its duly authorized officer and said Grantee has hereunto signed this Agreement on the Grantee’s own behalf, thereby representing that the Grantee has carefully read and understands this Agreement and the Plan as of the day and year first written above.
UNDER ARMOUR, INC. | |||
By: | |||
GRANTEE | |||
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Exhibit 10.10
RESTRICTED STOCK UNIT GRANT AGREEMENT
THIS AGREEMENT, made as of this ____ day of ____________________, 2016, (the “Agreement”) between UNDER ARMOUR, INC. (the “Company”) and _____________________________ (the “Grantee”).
WHEREAS, the Company has adopted the Second Amended and Restated 2005 Omnibus Long‑Term Incentive Plan, as amended (the “Plan”), which has been delivered or made available to Grantee, to promote the interests of the Company and its stockholders by providing the Company’s key employees and others with an appropriate incentive to encourage them to continue in the employ of the Company and to improve the growth and profitability of the Company; and
WHEREAS, the Plan provides for the Grant to Grantees in the Plan of restricted share units for shares of Stock of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:
1.Investment. The Grantee represents that the Restricted Stock Units (as defined herein) are being acquired for investment and not with a view toward the distribution thereof.
2.Grant of Restricted Stock Units. Pursuant to, and subject to, the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Grantee an Award of Restricted Stock Units for ________ shares of Stock of the Company (collectively, the “Restricted Stock Units”). The Purchase Price for the Restricted Stock Units shall be paid by the Grantee’s services to the Company.
3.Grant Date. The Grant Date of the Restricted Stock Units hereby granted is ____________, 2016.
4.Incorporation of the Plan. All terms, conditions and restrictions of the Plan are incorporated herein and made part hereof as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of this Agreement, as interpreted by the Board, or a Committee thereof, shall govern. Unless otherwise indicated herein, all capitalized terms used herein shall have the meanings given to such terms in the Plan.
5.Vesting and Delivery Date. Except as otherwise provided by Section 5(e), the Restricted Stock Units shall vest as follows provided (i) the Grantee remains employed by the Company on each such vesting date, and (ii) the Grantee has duly executed this Agreement prior to the first such vesting date:
(a) Below Threshold Level: All of the Restricted Stock Units shall be forfeited if the combined Operating Income for the Company for 2016 and 2017 is less than $___________; OR
(b) Threshold Level: Forty percent (40%) of the Restricted Stock Units (rounded up to the nearest whole share) shall be earned and eligible to vest if the combined Operating Income for the Company for 2016 and 2017 is equal to or greater than $___________ but less than $___________, with such number of Restricted Stock Units vesting in three equal annual installments on February 15, 2018 (or if later, the date of the Compensation Committee Certification), February 15, 2019 and February 15, 2020, with the first two installments rounded up or down to the nearest whole share and the third installment including the remaining shares (and the remaining sixty percent (60%) of the Restricted Stock Units shall be forfeited); OR
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(c) Target Level: Eighty percent (80%) of the Restricted Stock Units (rounded up to the nearest whole share) shall be earned and eligible to vest if the combined Operating Income for the Company for 2016 and 2017 is equal to or greater than $___________ but less than $___________, with such number of Restricted Stock Units vesting in three equal annual installments on February 15, 2018 (or if later, the date of the Compensation Committee Certification), February 15, 2019 and February 15, 2020, with the first two installments rounded up or down to the nearest whole share and the third installment including the remaining shares (and the remaining twenty percent (20%) of the Restricted Stock Units shall be forfeited); OR
(d) Stretch Level: All of the Restricted Stock Units shall be earned and eligible to vest if the combined Operating Income for the Company for 2016 and 2017 is equal to or greater than $___________, with such number of Restricted Stock Units vesting in three equal annual installments on February 15, 2018 (or if later, the date of the Compensation Committee Certification), February 15, 2019 and February 15, 2020, with the first two installments rounded up or down to the nearest whole share and the third installment including the remaining shares.
(e) Notwithstanding the foregoing, in the event that the Grantee’s employment is terminated upon the occurrence of an event specified in subclauses i. through iv. below, the Restricted Stock Units shall vest on the dates specified below:
i. In the event of the Grantee’s death or Disability occurring prior to the Compensation Committee Certification, the Operating Income requirements of the Stretch Level in Section 5(d) of this Agreement shall be automatically deemed satisfied and all of the Restricted Stock Units shall immediately vest on such date of termination;
ii. In the event of the Grantee’s death or Disability occurring following the Compensation Committee Certification, all unvested Restricted Stock Units not otherwise forfeited shall immediately vest on such date of termination;
iii. In the event of the Grantee’s Retirement occurring prior to the Compensation Committee Certification, all of the Restricted Stock Units shall expire and immediately be forfeited as of such date of termination; and
iv. In the event of the Grantee’s Retirement occurring following the Compensation Committee Certification, all unvested Restricted Stock Units not otherwise forfeited shall immediately vest on such date of termination; provided, however, that if the Company determines that the Grantee is a “specified employee” within the meaning of Section 409A, then to the extent any payment under this Agreement on account of the Grantee’s separation from service would be considered nonqualified deferred compensation under Section 409A, such payment shall be delayed until the earlier of (i) the date that is six months and one day after the date of such separation from employment or (ii) the date of Grantee’s death.
(f) As used in this Section 5, the following terms have the following meanings:
i. “Cause” shall mean the occurrence of any of the following: (a) the Grantee’s material misconduct or neglect in the performance of his or her duties; (b) the Grantee’s commission of any felony; offense punishable by imprisonment in a state or federal penitentiary; any offense, civil or criminal, involving material dishonesty, fraud, moral turpitude or immoral conduct; or any crime of sufficient import to potentially discredit or adversely affect the Company’s ability to conduct its business in the normal course; (c) the Grantee’s material breach of the Company’s written Code of Conduct, as in effect from time to time; (d) the Grantee’s commission of any act that results in severe harm to the Company excluding any act taken by the Grantee in good faith that he or she reasonably believed was in the best interests of the Company; or (e) the Grantee’s material breach of the Employee Confidentiality, Non-Competition and Non-Solicitation Agreement by and between Grantee and the Company (the “Confidentiality, Non-
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Compete and Non-Solicitation Agreement”) attached hereto as Attachment A. However, none of the foregoing events or conditions will constitute Cause unless the Company provides Grantee with written notice of the event or condition and thirty (30) days to cure such event or condition (if curable) and the event or condition is not cured within such 30-day period.
ii. “Compensation Committee Certification” shall mean the certification in writing of the achievement of the combined Operating Income for the Company by the Compensation Committee of the Board, which shall be required prior to the determination of the amount of the Restricted Stock Units earned and eligible to vest pursuant to Section 5(a), (b), (c) or (d). Upon such certification, the forfeiture of any Restricted Stock Units, as specified in Section 5, shall become immediately effective. Any unforfeited Restricted Stock Units shall vest on the dates as specified in Section 5.
iii. “Operating Income” shall mean the Company’s income from operations as reported in the Company’s audited financial statements prepared in accordance with generally accepted accounting principles. The Compensation Committee’s evaluation of the Operating Income shall exclude the impact of any generally accepted accounting principle changes implemented after the date hereof. In addition, in accordance with Section 17.3.4 of the Plan, the following impacts of acquisitions shall be excluded from the Compensation Committee’s evaluation of the Operating Income: (A) goodwill impairment charges related to any acquired entity or business, (B) non-capitalized deal costs related to any acquisition completed during 2016 or 2017, and (C) the amortization of intangible assets acquired in any acquisition completed during 2016 or 2017. Further, in accordance with Section 17.3.4 of the Plan, the following items shall be excluded in the Compensation Committee’s evaluation of the Operating Income: (A) any costs, expenses or losses incurred by the Company during 2016 or 2017 as a result of any particular litigation, claim, judgment or settlement (a “Litigation Matter”) to the extent such costs, expenses or losses related to the particular Litigation Matter exceed $3.0 million, (B) any foreign exchange losses incurred by the Company during 2016 or 2017 arising from the impact of foreign currency translation (such losses, “Translation Costs”) but only to the extent that the Translation Costs result from foreign currency translation rates differing from those utilized by the Company at the time the Operating Income thresholds are established for purposes of this Agreement, and are greater than the Translation Costs that would have resulted under such currency translation rates, and (C) any impairment charges related to the write-down of the Company’s accounts receivable asset due to the bankruptcy of a customer of the Company to the extent such impairment charges exceed $3.0 million.
iv. “Retirement” shall mean the Grantee’s voluntary termination from employment after attainment of age 60 with at least 10 years of continuous service (or after other significant service to the Company, as determined to be satisfied by the Chief Executive Officer and Chief Financial Officer of the Company in writing); provided, however, that the termination was not occasioned by a discharge for Cause.
(g) Unless otherwise specified in Section 5(e)(iv), on the first business day after each vesting date described in Sections 5(b), (c), (d) or (e), as applicable, the Company shall deliver to Grantee the shares of stock to which the Restricted Stock Units relate.
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6.Change in Control.
(a)In the event of a Change in Control in which the Restricted Stock Units will not be continued, assumed or substituted with Substitute Awards (as defined below), all of the Restricted Stock Units not otherwise forfeited shall vest immediately on the day immediately prior to the date of the Change in Control; provided, however, that in the event of a Change in Control occurring prior to the Compensation Committee Certification, the Operating Income requirements of the Target Level in Section 5(c) of this Agreement shall automatically be deemed satisfied for purposes of determining the number of Restricted Stock Units that will be forfeited and will vest.
(b)In the event of a Change in Control (i) occurring prior to the Compensation Committee Certification, and (ii) following which the Restricted Stock Units will be continued, assumed or substituted with Substitute Awards, no Compensation Committee Certification shall be required and the Operating Income requirements of the Target Level in Section 5(c) of this Agreement shall be automatically deemed satisfied, with such number of Substitute Awards not otherwise forfeited vesting in three equal annual installments on the dates set forth in Section 5(c) of this Agreement, unless otherwise accelerated pursuant to Section 5(e).
(c)In the event of a Change in Control (i) occurring following the Compensation Committee Certification, and (ii) following which the Restricted Stock Units will be continued, assumed or substituted with Substitute Awards, any Substitute Awards not otherwise forfeited shall vest in three equal annual installments on the dates set forth in Section 5(b), 5(c) or 5(d) of this Agreement, as applicable, unless otherwise accelerated pursuant to Section 5(e).
(d)If the Restricted Stock Units are substituted with Substitute Awards as set forth in subclauses (b) or (c) of this Section 6, and within 12 months following the Change in Control the Grantee is terminated by the Successor (or an affiliate thereof) without Cause (as defined above) or resigns for Good Reason, the Substitute Awards not otherwise forfeited shall immediately vest upon such termination or resignation; provided, however, that if the Company determines that the Grantee is a “specified employee” within the meaning of Section 409A, then to the extent any payment under this Agreement on account of the Grantee’s separation from service would be considered nonqualified deferred compensation under Section 409A, such payment shall be delayed until the earlier of (i) the date that is six months and one day after the date of such separation from employment, or (ii) the date of Grantee’s death.
(e)Unless otherwise specified above in Section 5(e) or 6(d), on the first business day after each vesting date set forth in Sections 6(a), (b), (c) or (d), as applicable, the Company shall deliver to Grantee the shares of stock to which the Restricted Stock Units or Substitute Awards relate.
(f)The following definitions shall apply to this Section 6:
i.“Good Reason” shall mean the occurrence of any of the following events: (a) a diminishment in the scope of the Grantee’s duties or responsibilities with the Company; (b) a reduction in the Grantee’s current base salary, bonus opportunity or a material reduction in the aggregate benefits or perquisites; or (c) a requirement that the Grantee relocate more than fifty (50) miles from his or her primary place of business as of the date of a Change in Control, or a significant increase in required travel as part of the Grantee’s duties and responsibilities with the Company. However, none of the foregoing events or conditions will constitute Good Reason unless (i) Grantee provides the Company with written objection to the event or condition within ninety (90) days following the occurrence thereof, (ii) the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving such written objection, and (iii) Grantee resigns his or her employment within thirty (30) days following the expiration of such cure period.
ii.An award will qualify as a “Substitute Award” if it is assumed, substituted or replaced by the Successor with awards that, solely in the discretion of the Compensation
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Committee of the Board, preserves the existing value of the outstanding Restricted Stock Units at the time of the Change in Control and provides vesting and payout terms that are at least as favorable to Grantee as the vesting and payout terms applicable to the Restricted Stock Units.
iii.“Successor” shall mean the continuing or successor organization, as the case may be, following the Change in Control.
7.Forfeiture. Subject to the provisions of the Plan and Sections 5 and 6 of this Agreement, with respect to the Restricted Stock Units which have not become vested on the date the Grantee’s employment is terminated, the Award of Restricted Stock Units shall expire and such unvested Restricted Stock Units shall immediately be forfeited on such date.
8. Employee Confidentiality, Non-Competition and Non-Solicitation Agreement. As a condition to the grant of the Restricted Stock Units, Grantee shall have executed and become a party to the Confidentiality, Non-Compete and Non-Solicitation Agreement.
9.No Shareholder Rights. Grantee does not have any rights of a shareholder with respect to the Restricted Stock Units. No dividend equivalents will be earned or paid with regard to the Restricted Stock Units.
10.Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party hereto upon any breach or default of any party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party or any provisions or conditions of this Agreement, shall be in writing and shall be effective only to the extent specifically set forth in such writing.
11.Integration. This Agreement and the Plan contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and in the Plan. This Agreement and the Plan supersede all prior agreements and understandings between the parties with respect to its subject matter.
12.Withholding Taxes. Grantee agrees, as a condition of this grant, that Grantee will make acceptable arrangements to pay any withholding or other taxes that may be due as a result of vesting in Restricted Stock Units or delivery of shares acquired under this grant. In the event that the Company determines that any federal, state, local, municipal or foreign tax or withholding payment is required relating to the vesting in Restricted Stock Units or delivery of shares arising from this grant, the Company shall have the right to require such payments from Grantee in the form and manner as provided in the Plan. The Grantee authorizes the Company at its discretion to satisfy its withholding obligations, if any, by one or a combination of the following:
(a) | withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company; or |
(b) | withholding from proceeds of the sale of shares of Stock acquired upon settlement of the Restricted Stock Units either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); or |
(c) | withholding in shares of Stock to be issued upon settlement of the Restricted Stock Units; or |
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(d) | by any other method deemed by the Company to comply with applicable laws. |
13.Data Privacy. In order to administer the Plan, the Company may process personal data about Grantee. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about the Grantee such as home address and business address and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan. By accepting this grant, Grantee gives explicit consent to the Company to process any such personal data. Grantee also gives explicit consent to the Company to transfer any such personal data outside the country in which Grantee works or is employed, including, with respect to non-U.S. resident Grantees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer the Plan.
14.Electronic Delivery. The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this grant Grantee agrees that the Company may deliver the Plan prospectus and the Company’s annual report to Grantee in an electronic format. If at any time Grantee would prefer to receive paper copies of these documents, as Grantee is entitled to receive, the Company would be pleased to provide copies. Grantee should contact _____________________________ to request paper copies of these documents.
15.Counterparts; Electronic Signature. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. This Agreement may be signed by the Company through application of an authorized officer’s signature, and may be signed by Grantee through an electronic signature.
16.Governing Law; Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Maryland, without regard to the provisions governing conflict of laws. For purposes of litigating any dispute that arises under this Award of Restricted Stock Units or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Maryland, and agree that such litigation will be conducted in the jurisdiction and venue of the United States District Court for the District of Maryland or, in the event such jurisdiction is not available, any of the appropriate courts of the State of Maryland, and no other courts.
17.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
18.Grantee Acknowledgment. The Grantee hereby acknowledges receipt of a copy of the Plan. The Grantee hereby acknowledges that all decisions, determinations and interpretations of the Board, or a Committee thereof, in respect of the Plan, this Agreement and this Award of Restricted Stock Units shall be final and conclusive.
The Company has caused this Agreement to be duly executed by its duly authorized officer and said Grantee has hereunto signed this Agreement on the Grantee’s own behalf, thereby representing that the Grantee has carefully read and understands this Agreement and the Plan as of the day and year first written above.
UNDER ARMOUR, INC. | |||
By: | |||
GRANTEE | |||
6
Attachment A
[Attachment A, the Form of Employee Confidentiality, Non-Competition and Non-Solicitation Agreement by and between certain executives and the Company, has been separately filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as Exhibit 10.14]
7
Exhibit 10.11
RESTRICTED STOCK UNIT GRANT AGREEMENT
FOR NON-US GRANTEES
THIS AGREEMENT, made as of this ____ day of ____________________, 2016, (the “Agreement”) between UNDER ARMOUR, INC. (the “Company”) and _____________________________ (the “Grantee”).
WHEREAS, the Company has adopted the Second Amended and Restated 2005 Omnibus Long‑Term Incentive Plan as amended (the “Plan”), which has been delivered or made available to Grantee, to promote the interests of the Company and its stockholders by providing the Company’s key employees and others with an appropriate incentive to encourage them to continue in the employ of the Company and to improve the growth and profitability of the Company; and
WHEREAS, the Plan provides for the Grant to Grantees in the Plan of restricted share units for shares of Stock of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:
1.Investment. The Grantee represents that the Restricted Stock Units (as defined herein) are being acquired for investment and not with a view toward the distribution thereof.
2.Grant of Restricted Stock Units. Pursuant to, and subject to, the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Grantee an award (the “Award”) of Restricted Stock Units for ________ shares of Stock of the Company (collectively, the “Restricted Stock Units”). The Purchase Price for the Restricted Stock Units shall be paid by the Grantee’s services to the Company.
3.Grant Date. The Grant Date of the Restricted Stock Units hereby granted is ____________, 2016.
4.Incorporation of the Plan. All terms, conditions and restrictions of the Plan are incorporated herein and made part hereof as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of this Agreement, as interpreted by the Board, or a Committee thereof, shall govern. Unless otherwise indicated herein, all capitalized terms used herein shall have the meanings given to such terms in the Plan.
5.Vesting and Delivery Date. The Restricted Stock Units shall vest as follows provided (i) the Grantee remains employed by the Company on each such vesting date, and (ii) the Grantee has duly executed this Agreement prior to the first such vesting date:
(a) Below Threshold Level: All of the Restricted Stock Units shall be forfeited if the combined Operating Income for the Company for 2016 and 2017 is less than $___________; OR
(b) Threshold Level: Forty percent (40%) of the Restricted Stock Units (rounded up to the nearest whole share) shall be earned and eligible to vest if the combined Operating Income for the Company for 2016 and 2017 is equal to or greater than $___________ but less than $___________, with such number of Restricted Stock Units vesting in three equal annual installments on February 15, 2018 (or if later, the date of the Compensation Committee Certification), February 15, 2019 and February 15, 2020, with the first two installments rounded up or down to the nearest whole share and the third installment including the remaining shares (and the remaining sixty percent (60%) of the Restricted Stock Units shall be forfeited); OR
(c) Target Level: Eighty percent (80%) of the Restricted Stock Units (rounded up to the nearest whole share) shall be earned and eligible to vest if the combined Operating Income for the Company for 2016 and 2017 is equal to or greater than $______but less than $______, with such number of Restricted Stock Units vesting in three equal annual installments on February 15, 2018 (or if later, the date of the Compensation Committee Certification), February 15, 2019 and February 15, 2020, with the first two installments rounded up or down to the nearest whole share and the third installment including the remaining shares (and the remaining twenty percent (20%) of the Restricted Stock Units shall be forfeited); OR
(d) Stretch Level: All of the Restricted Stock Units shall be earned and eligible to vest if the combined Operating Income for the Company for 2016 and 2017 is equal to or greater than $_____, with such number of Restricted Stock Units vesting in three equal annual installments on February 15, 2018 (or if later, the date of the Compensation Committee Certification), February 15, 2019 and February 15, 2020, with the first two installments rounded up or down to the nearest whole share and the third installment including the remaining shares.
(e) Notwithstanding the foregoing, (x) in the event of Grantee’s death or Disability occurring prior to the Compensation Committee Certification, the Operating Income requirements of the Stretch Level in Section 5(d) of this Agreement shall be automatically deemed satisfied and all of the Restricted Stock Units shall immediately vest on such date of termination, and (y) in the event of Grantee’s death or disability occurring following the Compensation Committee Certification, all unvested Restricted Stock Units not otherwise forfeited shall immediately vest on such date of termination.
(f) As used in this Section 5, the following terms have the following meanings:
i. “Compensation Committee Certification” shall mean the certification in writing of the achievement of the combined Operating Income for the Company by the Compensation Committee of the Board, which shall be required prior to the determination of the amount of the Restricted Stock Units earned and eligible to vest pursuant to Section 5(a), (b), (c) or (d). Upon such certification, the forfeiture of any Restricted Stock Units, as specified in Section 5, shall become immediately effective. Any unforfeited Restricted Stock Units shall vest on the dates as specified in Section 5
ii. “Operating Income” shall mean the Company’s income from operations as reported in the Company’s audited financial statements prepared in accordance with generally accepted accounting principles. The Compensation Committee’s evaluation of the Operating Income shall exclude the impact of any generally accepted accounting principle changes implemented after the date hereof. In addition, in accordance with Section 17.3.4 of the Plan, the following impacts of acquisitions shall be excluded from the Compensation Committee’s evaluation of the Operating Income: (A) goodwill impairment charges related to any acquired entity or business, (B) non-capitalized deal costs related to any acquisition completed during 2016 or 2017, and (C) the amortization of intangible assets acquired in any acquisition completed during 2016 or 2017. Further, in accordance with Section 17.3.4 of the Plan, the following items shall be excluded in the Compensation Committee’s evaluation of the Operating Income: (A) any costs, expenses or losses incurred by the Company during 2016 or 2017 as a result of any particular litigation, claim, judgment or settlement (a “Litigation Matter”) to the extent such costs, expenses or losses related to the particular Litigation Matter exceed $3.0 million, (B) any foreign exchange losses incurred by the Company during 2016 or 2017 arising from the impact of foreign currency translation (such losses, “Translation Costs”) but only to the extent that the Translation Costs result from foreign currency translation rates differing from those utilized by the Company at the time the Operating Income thresholds are established for purposes of this Agreement, and are greater than the Translation Costs that would have resulted under such currency translation rates, and (C) any impairment charges related to the write-down of the Company’s accounts receivable asset due to the bankruptcy of a customer of the Company to the extent such impairment charges exceed $3.0 million.
(g) On the first business day after each vesting date described in Sections 5(b), (c), (d) or (e), as applicable, the Company shall deliver to Grantee the shares of stock to which the Restricted Stock Units relate.
6.Change in Control.
(a)In the event of a Change in Control in which the Restricted Stock Units will not be continued, assumed or substituted with Substitute Awards (as defined below), all of the Restricted Stock Units not otherwise forfeited shall vest immediately on the day immediately prior to the date of the Change in Control; provided, however, that in the event of a Change in Control occurring prior to the Compensation Committee Certification, the Operating Income requirements of the Target Level in Section 5(c) of this Agreement shall automatically be deemed satisfied for purposes of determining the number of Restricted Stock Units that will be forfeited and will vest.
(b)In the event of a Change in Control (i) occurring prior to the Compensation Committee Certification, and (ii) following which the Restricted Stock Units will be continued, assumed or substituted with Substitute Awards, no Compensation Committee Certification shall be required and the Operating Income requirements of the Target Level in Section 5(c) of this Agreement shall be automatically deemed satisfied, with such number of Substitute Awards not otherwise forfeited vesting in three equal annual installments on the dates set forth in Section 5(c) of this Agreement, unless otherwise accelerated pursuant to Section 5(e).
(c)In the event of a Change in Control (i) occurring following the Compensation Committee Certification, and (ii) following which the Restricted Stock Units will be continued, assumed or substituted with Substitute Awards, any Substitute Awards not otherwise forfeited shall vest in three equal annual installments on the dates set forth in Section 5(b), 5(c) or 5(d) of this Agreement, as applicable, unless otherwise accelerated pursuant to Section 5(e).
(d)If the Restricted Stock Units are substituted with Substitute Awards as set forth in subclauses (b) or (c) of this Section 6, and within 12 months following the Change in Control the Grantee is terminated by the Successor (or an affiliate thereof) without Cause or resigns for Good Reason, the Substitute Awards not otherwise forfeited shall immediately vest upon such termination or resignation.
(e)On the first business day after each vesting date set forth in Sections 6(a), (b), (c) or (d), as applicable, the Company shall deliver to the Grantee the shares of stock to which the Restricted Stock Units or Substitute Awards relate.
(f)The following definitions shall apply to this Section 6:
i.“Cause” shall mean the occurrence of any of the following: (a) the Grantee’s material misconduct or neglect in the performance of his or her duties; (b) the Grantee’s commission of any felony; offense punishable by imprisonment in a state or federal penitentiary; any offense, civil or criminal, involving material dishonesty, fraud, moral turpitude or immoral conduct; or any crime of sufficient import to potentially discredit or adversely affect the Company’s ability to conduct its business in the normal course; (c) the Grantee’s material breach of the Company’s written Code of Conduct, as in effect from time to time; (d) the Grantee’s commission of any act that results in severe harm to the Company excluding any act taken by the Grantee in good faith that he or she reasonably believed was in the best interests of the Company; or (e) the Grantee’s material breach of the Employee Confidentiality, Non-Competition and Non-Solicitation Agreement by and between Grantee and the Company (the “Confidentiality, Non-Compete and Non-Solicitation Agreement”) attached hereto as Attachment A or any other similar agreement entered into by the Grantee and the Company or any subsidiary thereof. However, none of the foregoing events or conditions will constitute Cause unless the Company provides Grantee with written notice of
the event or condition and thirty (30) days to cure such event or condition (if curable) and the event or condition is not cured within such 30-day period.
ii.“Good Reason” shall mean the occurrence of any of the following events: (a) a diminishment in the scope of the Grantee’s duties or responsibilities with the Company; (b) a reduction in the Grantee’s current base salary, bonus opportunity or a material reduction in the aggregate benefits or perquisites; or (c) a requirement that the Grantee relocate more than fifty (50) miles from his or her primary place of business as of the date of a Change in Control, or a significant increase in required travel as part of the Grantee’s duties and responsibilities with the Company. However, none of the foregoing events or conditions will constitute Good Reason unless (i) Grantee provides the Company with written objection to the event or condition within ninety (90) days following the occurrence thereof, (ii) the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving such written objection, and (iii) Grantee resigns his or her employment within thirty (30) days following the expiration of such cure period.
iii.An award will qualify as a “Substitute Award” if it is assumed, substituted or replaced by the Successor with awards that, solely in the discretion of the Compensation Committee of the Board, preserves the existing value of the outstanding Restricted Stock Units at the time of the Change in Control and provides vesting and payout terms that are at least as favorable to Grantee as the vesting and payout terms applicable to the Restricted Stock Units.
iv.“Successor” shall mean the continuing or successor organization, as the case may be, following the Change in Control.
7.Forfeiture. Subject to the provisions of the Plan and Sections 5 and 6 of this Agreement, with respect to the Restricted Stock Units which have not become vested on the date the Grantee’s employment is terminated, the Award of Restricted Stock Units shall expire and such unvested Restricted Stock Units shall immediately be forfeited on such date.
For purposes of the Award, the Grantee’s employment will be considered terminated as of the date the Grantee is no longer actively providing services to the Company or any Subsidiary or Affiliate, as applicable (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or rendering services or the terms of the Grantee’s employment or service agreement, if any). Unless otherwise determined by the Company, the Grantee’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by any notice period (e.g., the Grantee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Grantee is employed or rendering services or the terms of the Grantee’s employment or service agreement, if any). The Committee shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for purposes of his or her Award (including whether the Grantee may still be considered to be providing services while on a leave of absence).
8.Obligation to Continue Employment. Neither the Company nor any Subsidiary or Affiliate is obligated by or as a result of the Plan or this Agreement to continue the Grantee’s status as an employee and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary or Affiliate to terminate the employment status of the Grantee at any time.
9.Employee Confidentiality, Non-Competition and Non-Solicitation Agreement. As a condition to the grant of the Restricted Stock Units, Grantee shall have executed and become a party to the Confidentiality, Non-Compete and Non-Solicitation Agreement.
10.No Shareholder Rights. Grantee does not have any rights of a shareholder with respect to the Restricted Stock Units. No dividend equivalents will be earned or paid with regard to the Restricted Stock Units.
11.Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party hereto upon any breach or default of any party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party or any provisions or conditions of this Agreement, shall be in writing and shall be effective only to the extent specifically set forth in such writing.
12.Integration. This Agreement and the Plan contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and in the Plan. This Agreement and the Plan supersede all prior agreements and understandings between the parties with respect to its subject matter.
13.Withholding Taxes. The Grantee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary or Affiliate for which the Grantee is a Service Provider (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, but not limited to, the grant, vesting or settlement of the Restricted Stock Units, the subsequent sale of any shares of Stock acquired under the Plan and the receipt of any dividends or dividend equivalents; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee is subject to Tax-Related Items in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to the relevant taxable or tax withholding event, as applicable, the Grantee agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy their withholding obligations, if any, with regard to all Tax-Related Items by one or a combination of the following:
(a) | withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer; or |
(b) | withholding from proceeds of the sale of shares of Stock acquired upon settlement of the Restricted Stock Units either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); or |
(c) | withholding in shares of Stock to be issued upon settlement of the Restricted Stock Units; or |
(d) | by any other method deemed by the Company to comply with applicable laws. |
Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Grantee will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in shares of Stock. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, for tax purposes, the Grantee is deemed to have been issued the full number of shares subject to the vested Restricted Stock Units, notwithstanding that a number of the shares are held back solely for the purpose of paying the Tax-Related Items.
Finally, the Grantee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares of Stock or the proceeds of the sale of shares of Stock if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.
14.Nature of Grant. In accepting the Award, the Grantee acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
(b)the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past;
(c)all decisions with respect to future restricted stock units or other grants, if any, will be at the sole discretion of the Company;
(d)the Grantee is voluntarily participating in the Plan;
(e)the Award and any shares of Stock acquired under the Plan are not intended to replace any pension rights or compensation;
(f)the Award and any shares of Stock acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or payments or welfare benefits or similar payments;
(g)the future value of the shares of Stock underlying the Award is unknown, indeterminable, and cannot be predicted with certainty;
(h)no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from the termination of the Grantee’s status as an employee (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or rendering services or the terms of the Grantee’s employment agreement, if any), and in consideration of the grant of the Restricted Stock Units to which the Grantee is otherwise not entitled, the Grantee irrevocably agrees never to institute any claim against the Company or any other Subsidiary or Affiliate, waives his or her ability, if any, to bring any such claim, and releases the Company and any other Subsidiary or Affiliate from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Grantee shall be deemed irrevocably to have agreed not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(i)unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Restricted
Stock Units or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock; and
(j)neither the Company nor any other Subsidiary or Affiliate shall be liable for any foreign exchange rate fluctuation between the Grantee’s local currency and the United States Dollar that may affect the value of the Award or of any amounts due to the Grantee pursuant to settlement of the Award or the subsequent sale of any shares of Stock acquired upon settlement.
15.Data Privacy. The Grantee hereby voluntarily consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement and any other Award grant materials by and among, as applicable, the Company and any Subsidiary or Affiliate for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.
The Grantee understands that the Company and any Subsidiary or Affiliate may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all awards or any other entitlement to shares of Stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.
The Grantee understands that Data will be transferred to the stock plan service provider selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting Human Resources at Totalrewards@underarmour.com. The Grantee authorizes the Company, the stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that Data will be held only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Grantee understands that he or she is providing the consents herein on a purely voluntary basis. If the Grantee does not consent, or if the Grantee later seeks to revoke his or her consent, his or her employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing consent is that the Company would not be able to grant the Restricted Stock Units or other equity awards or administer or maintain such awards. Therefore, the Grantee understands that refusing or withdrawing his or her consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact Human Resources at Totalrewards@underarmour.com.
16.Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
17.Counterparts; Electronic Signature. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. This Agreement may be signed by the Company through application of an authorized officer’s signature, and may be signed by Grantee through an electronic signature.
18.Governing Law; Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Maryland, without regard to the provisions governing conflict of laws. For purposes of litigating any dispute that arises under this Award of Restricted Stock Units or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Maryland, and agree that such litigation will be conducted in the jurisdiction and venue of the United States District Court for the District of Maryland or, in the event such jurisdiction is not available, any of the appropriate courts of the State of Maryland, and no other courts.
19.Appendix. Notwithstanding any provisions in this Award Agreement, the Award shall be subject to any special terms and conditions set forth in any Appendix to this Award Agreement for the Grantee’s country. Moreover, if the Grantee relocates to one of the countries included in the Appendix, the special terms and conditions for such country will apply to the Grantee, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Award Agreement.
20.Insider Trading Restrictions/Market Abuse Laws. The Grantee acknowledges that, depending on the Grantee’s country of residence, the Grantee may be subject to insider trading restrictions and/or market abuse laws, which may affect the Grantee’s ability to acquire or sell shares of Stock or rights to shares of Stock (e.g., Restricted Stock Units) under the Plan during such times as the Grantee is considered to have “inside information” regarding the Company (as defined by the laws in the Grantee’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Grantee acknowledges that it is his or her responsibility to comply with any applicable restrictions, and the Grantee is advised to speak to his or her personal advisor on this matter.
21.Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Grantee’s participation in the Plan, on the Award and on any shares of Stock issued upon settlement of the Award, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
22.Language. If the Grantee has received this Agreement, or any other document related to the Award and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control
23.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
24.Grantee Acknowledgment. The Grantee hereby acknowledges receipt of a copy of the Plan. The Grantee hereby acknowledges that all decisions, determinations and interpretations of the Board, or a Committee thereof, in respect of the Plan, this Agreement and this Award of Restricted Stock Units shall be final and conclusive.
The Company has caused this Agreement to be duly executed by its duly authorized officer and said Grantee has hereunto signed this Agreement on the Grantee’s own behalf, thereby representing that the Grantee has carefully read and understands this Agreement and the Plan as of the day and year first written above.
UNDER ARMOUR, INC.
By:
GRANTEE
___________________________________
APPENDIX
TO THE
RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR NON-U.S. EMPLOYEES
Terms and Conditions
This Appendix includes additional terms and conditions that govern the Award if the Grantee works and/or resides in one of the countries listed below. If the Grantee is a citizen or resident of a country other than the one in which the Grantee is currently working and/or residing (or is considered as such for local law purposes), or the Grantee transfers employment to a different country after the Award is granted, the Company will, in its discretion, determine the extent to which the terms and conditions contained herein will apply to the Grantee.
Notifications
This Appendix also includes information regarding certain other issues of which the Grantee should be aware with respect to the Grantee’s participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of January 2014. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Grantee not rely on the information noted herein as the only source of information relating to the consequences of participation in the Plan because the information may be out-of-date at the time the Grantee vests in the Restricted Stock Units or sells any shares of Stock issued at settlement of the Award.
In addition, the information contained herein is general in nature and may not apply to the Grantee’s particular situation. As a result, the Company is not in a position to assure the Grantee of any particular result. Accordingly, the Grantee is strongly advised to seek appropriate professional advice as to how the relevant laws in the Grantee’s country may apply to the Grantee’s individual situation.
If the Grantee is a citizen or resident of a country other than the one in which the Grantee is currently working and/or residing (or is considered as such for local law purposes), or if the Grantee transfers employment to a different country after the Award is granted, the notifications contained in this Appendix may not be applicable to the Grantee in the same manner.
Capitalized terms used but not defined in this Appendix shall have the same meanings assigned to them in the Plan and the Award Agreement.
AUSTRALIA
Notifications
Securities Law Information. If the Grantee acquires shares of Stock under the Plan and offers the shares for sale to a person or entity resident in Australia, the offer may be subject to disclosure requirements under Australian law. The Grantee should consult with his or her personal legal advisor before making any such offer in Australia.
The Company has applied to the Australian Securities and Investment Commission (“ASIC”) for exemptive relief from certain filings with the ASIC that otherwise would be required under the Australian Corporations Act of 2001 (“Act”) in connection with the grants of Restricted Stock Units under the Plan. Under Armour fully expects that such relief will be granted. However, if for any reason such relief is not obtained, Grantee understands and acknowledges that Under Armour may, in its sole discretion, take such action with respect to the Award of Restricted Stock Units made to Grantee is practicable to comply with the relevant provisions of the Act.
BRAZIL
Terms and Conditions
Compliance with Law. The Grantee must comply with applicable Brazilian laws and is responsible for paying any and all applicable taxes associated with the settlement of the Award, the receipt of any dividends, and the sale of shares of Stock acquired under the Plan.
Notifications
Exchange Control Information. If the Grantee is a resident or is domiciled in Brazil, he or she will be required to submit an annual declaration of assets and rights held outside of Brazil to the Central Bank of Brazil if the aggregate value of such assets and rights equals or exceeds US$100,000. Assets and rights that must be reported include any shares of Stock acquired under the Plan. Foreign individuals holding Brazilian visas are considered Brazilian residents for purposes of this reporting requirement and must declare at least the assets held abroad that were acquired subsequent to the date of admittance as a resident of Brazil.
CANADA
Terms and Conditions
Nature of Award. The following provision replaces the second paragraph of Section 7 of the "Forfeiture" section of the Award Agreement:
For purposes of the Award, Grantee's status as Service Provider will be considered terminated as of the date Grantee is no longer actively providing services to the Company or one of its Subsidiaries or Affiliates (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Grantee is employed or rendering services or the terms of Grantee's employment or service agreement, if any); unless otherwise expressly provided in this Agreement or determined by the Company, Grantee's right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of the earlier of (a) the date on which Grantee receives notice of termination of Grantee's status as Service Provider, or (b) the date Grantee is no longer actively providing services to the Company or one of its Subsidiaries or Affiliates (i.e., the period during which Grantee is considered employed would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where Grantee is employed or rendering services or the terms of Grantee's employment or service agreement, if any); the Committee shall have the exclusive discretion to determine when Grantee is no longer actively providing services for purposes of Grantee's Award (including whether Grantee may still be considered to be providing services while on a leave of absence).
The following provisions apply if Grantee is in Quebec:
Consent to Receive Information in English. The parties acknowledge that it is their express wish that the Award Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
Les parties reconnaissent avoir expressement souhaité que la convention [“Award Agreement”], ainsi que tous les documents, avis et procédures judiciaries, éxecutés, donnés ou intentés en vertu de, ou lié, directement ou indirectement à la présente convention, soient rédigés en langue anglaise.
Data Privacy. The following provision supplements the “Data Privacy” section of the Award Agreement:
Grantee hereby authorizes the Company and the Company’s representatives to discuss and obtain all relevant information from all personnel, professional or non-professional, involved in the administration of the Plan. Grantee further authorizes the Company and any Subsidiary or Affiliate and the Company’s designated broker/third party administrator for the Plan (or such other stock plan service provider that may be selected by the Company to assist with the implementation, administration and management of the Plan) to disclose and discuss such information with their advisors. Grantee also authorizes the Company and/or any Subsidiary or Affiliate to record such information and to keep such information in Grantee's employment file.
Notifications
Securities Law Information. Grantee is permitted to sell shares of Stock acquired through the Plan through the designated broker appointed under the Plan, if any (or any other broker acceptable to the Company), provided the resale of shares acquired under the Plan takes place outside of Canada through the facilities of a stock exchange on which the Shares are listed. The shares of Stock are currently listed on the New York Stock Exchange.
Foreign Asset/Account Reporting Information
Foreign property, including shares and rights to receive shares of Stock (e.g., Restricted Stock Units) of a non-Canadian company held by a Canadian resident must generally be reported annually on a Form T1135 (Foreign Income Verification Statement) if the total cost of the foreign property exceeds $100,000 at any time during the year. Thus, Restricted Stock Units must be reported (generally at a nil cost) if the $100,000 cost threshold is exceeded because other foreign property is held by the Grantee. When shares of Stock are acquired, their cost generally is the adjusted cost base ("ACB") of the Shares. The ACB would ordinarily equal the fair market value of the shares of Stock at the time of acquisition, but if the Grantee owns other shares of Stock of the same company, this ACB may have to be averaged with the ACB of the other shares of Stock. The form must be filed by April 30th of the following year. It is Grantee’s responsibility to comply with applicable reporting obligations.
CHILE
Notifications
Exchange Control and Tax Reporting Information. Grantee must comply with the exchange control and tax reporting requirements in Chile in connection with the acquisition and sale of shares of Stock under the Plan.
Grantee is not required to repatriate funds obtained from the sale of shares of Stock to Chile. However, if Grantee decides to repatriate such funds to Chile, Grantee must do so through the Formal Exchange Market (i.e., a commercial bank or registered foreign exchange office) if the funds exceed US$10,000.
If Grantee's aggregate investments held outside of Chile exceed US$5,000,000 (including the investments made under the Plan), Grantee must report the status of such investments annually to the Central Bank, using Annex 3.1 of Chapter XII of the Foreign Exchange Regulations.
If Grantee holds shares of Stock acquired under the Plan outside of Chile, Grantee must report the details of these investments on annual basis to the Chilean Internal Revenue Service ("CIRS") by filing Tax Form 1851, “Annual Sworn Statement Regarding Investments Held Abroad.” Furthermore, if Grantee wishes to receive credit against Grantee's Chilean income taxes for taxes paid abroad, Grantee must report the payment of taxes abroad to the CIRS by filing Tax Form 1853, “Annual Sworn Statement Regarding Credits for Taxes Paid Abroad.” These statements must be submitted electronically through the CIRS website (www.sii.cl) before March 15 of each year.
Securities Law Information. Neither the Restricted Stock Units nor the shares of Stock issued in connection with the Restricted Stock Units will be registered under the Registry of Securities held by the Chilean Superintendence of Securities ("CSS") nor are they under the control or supervision of the CSS.
CHINA
Terms and Conditions
The following provisions will apply to Grantees who are subject to PRC exchange control restrictions, as determined by the Company in its sole discretion:
Exchange Control Information. Grantee understands and agrees that, to facilitate compliance with exchange control laws in China, Grantee may be required to immediately repatriate to China the cash proceeds from the sale of any shares of Stock acquired at vesting of the Restricted Stock Units and any dividends received in relation to the shares. Grantee further understands that, under local law, such repatriation of the cash proceeds may need to be effectuated through a special exchange control account established by the Company or any Subsidiary or Affiliate, and Grantee hereby consents and agrees that the proceeds from the sale of Shares acquired under the Plan and any dividends received in relation to the Shares may be transferred to such special account prior to being delivered to Grantee.
The proceeds may be paid to Grantee in U.S. dollars or local currency at the Company’s discretion. In the event the proceeds are paid to Grantee in U.S. dollars, Grantee understands that Grantee will be required to set up a U.S. dollar bank account in China and provide the bank account details to the Company and/or any Subsidiary or Affiliate, as applicable, so that the proceeds may be deposited into this account.
Grantee agrees to bear any currency fluctuation risk between the time the shares of Stock are sold or dividends are paid and the time the proceeds are distributed to Grantee through any such special account.
Grantee further agrees to comply with any other requirements that may be imposed by the Company in the future in order to facilitate compliance with exchange control requirements in China.
Foreign Asset/Account Reporting Information. Effective from January 1, 2014, PRC residents are required to report to SAFE details of their foreign financial assets and liabilities, as well as details of any economic transactions conducted with non-PRC residents, either directly or through financial institutions. Under these new rules, Grantee may be subject to reporting obligations for the shares or awards, including stock options and restricted stock units, acquired under the Plan and Plan-related transactions. It is the Grantee's responsibility to comply with this reporting obligation and the Grantee should consult his or her personal tax advisor in this regard.
DENMARK
Notifications
Exchange Control Information. If Grantee establishes accounts holding shares of Stock or cash outside Denmark, Grantee must report the account to the Danish Tax Administration. The form which should be used in this respect can be obtained from a local bank. (Please note that these obligations are separate from and in addition to the obligations described below.)
Securities/Tax Reporting Information. If Grantee holds shares of Stock acquired under the Plan in a brokerage account with a broker or bank outside Denmark, Grantee is required to inform the Danish Tax Administration about the account. For this purpose, Grantee must file a Form V (Erklaering V) with the Danish Tax Administration. The Form V must be signed both by Grantee and by the applicable broker or bank where the account is held. By signing the Form V, the broker or bank undertakes to forward
information to the Danish Tax Administration concerning the shares of Stock in the account without further request each year. By signing the Form V, Grantee authorizes the Danish Tax Administration to examine the account. A sample of the Form V can be found at the following website: www.skat.dk/SKAT.aspx?oId=90030&vId=0.
In addition, if Grantee opens a brokerage account (or a deposit account with a U.S. bank) for the purpose of holding cash outside Denmark, Grantee is also required to inform the Danish Tax Administration about this account. To do so, Grantee must also file a Form K (Erklaering K) with the Danish Tax Administration. The Form K must be signed both by Grantee and by the applicable broker or bank where the account is held. By signing the Form K, the broker/bank undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the content of the account. By signing the Form K, Grantee authorizes the Danish Tax Administration to examine the account. A sample of Form K can be found at the following website: www.skat.dk/SKAT.aspx?oId=73346&vId=0.
HONG KONG
Terms and Conditions
Restricted Stock Units Payable Only in Shares. Notwithstanding any discretion in the Plan or anything to the contrary in the Award Agreement, the grant of Restricted Stock Units does not provide any right for Grantee to receive a cash payment, and the Restricted Stock Units are payable in shares of Stock only.
Securities Law Information. WARNING: The grant of Restricted Stock Units under the terms of the Award Agreement and the Plan and the issuance of shares of Stock at vesting of Restricted Stock Units do not constitute a public offering of securities, and they are available only to Service Providers.
Please be aware that the contents of the Award Agreement, including this Appendix, and the Plan have not been reviewed by any regulatory authority in Hong Kong. Grantee is advised to exercise caution in relation to the right to acquire shares of Stock at vesting of the Restricted Stock Units, or otherwise, under the Plan. If Grantee is in any doubt about any of the contents of the Award Agreement, including this Appendix or the Plan, Grantee should obtain independent professional advice.
Sale of Shares. By accepting the Restricted Stock Units, Grantee agrees that in the event that the Restricted Stock Units vest and shares of Stock are issued to Grantee within six months of the Date of Grant, Grantee agrees that Grantee will not dispose of any shares acquired prior to the six-month anniversary of the Date of Grant.
MEXICO
Term and Conditions
No Entitlement or Claims for Compensation. These provisions supplement Section 14 of the Award Agreement:
Modification. By accepting the Restricted Stock Units, Grantee understands and agrees that any modification of the Plan or the Agreement or its termination shall not constitute a change or impairment of the terms and conditions of employment.
Policy Statement. The Award of Restricted Stock Units the Company is making under the Plan is unilateral and discretionary and, therefore, the Company reserves the absolute right to amend it and discontinue it at any time without any liability.
The Company, with registered offices at 1020 Hull Street, Baltimore, MD 21230, U.S.A., is solely responsible for the administration of the Plan and participation in the Plan and the acquisition of shares of Stock does not, in any way, establish an employment relationship between Grantee and the Company or
any of its Subsidiaries or Affiliates since Grantee is participating in the Plan on a wholly commercial basis and the sole employer is UA Mexico Services, S. De R.I. C.V., nor does it establish any rights between Grantee and the employer.
Plan Document Acknowledgment. By accepting the Award of Restricted Stock Units, Grantee acknowledges that Grantee has received copies of the Plan, has reviewed the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and the Agreement.
In addition, by accepting the Agreement, Grantee further acknowledges that Grantee has read and specifically and expressly approved the terms and conditions in the Agreement, in which the following is clearly described and established: (i) participation in the Plan does not constitute an acquired right; (ii) the Plan and participation in the Plan is offered by the Company on a wholly discretionary basis; (iii) participation in the Plan is voluntary; and (iv) the Company and any Subsidiary or Affiliate are not responsible for any decrease in the value of the shares of Stock underlying the Restricted Stock Units.
Finally, Grantee hereby declares that Grantee does not reserve any action or right to bring any claim against the Company or any of its Subsidiaries or Affiliates for any compensation or damages as a result of Grantee’s participation in the Plan and therefore grants a full and broad release to the Company and any Subsidiary or Affiliate, as applicable, with respect to any claim that may arise under the Plan.
Spanish Translation
Sin derecho a compensación o reclamaciones por compensación. Estas disposiciones complementan el Contrato:
Modificación. Al aceptar las Unidades de Acciones Restringidas, el recipiente del premio <"Grantee"> entiende y acuerda que cualquier modificación al Plan o al Contrato o su terminación no constituirá un cambio o perjuicio a los términos y condiciones de empleo.
Declaración de Política. El Otorgamiento de Unidades de Acciones Restringidas que la Compañía está haciendo de conformidad con el Plan es unilateral y discrecional y, por lo tanto, la Compañía se reserva el derecho absoluto de modificar y discontinuar el mismo en cualquier momento, sin responsabilidad alguna.
La Compañía, con oficinas registradas ubicadas en 1020 Hull Street, Baltimore, MD 21230, EE.UU. es únicamente responsable de la administración del Plan y la participación en el Plan y la adquisición de Acciones no establece, de forma alguna, una relación de trabajo entre el "Grantee" y la Compañía, ya que el "Grantee" participa en el Plan de una forma totalmente comercial y el único patrón es UA Mexico Services, S. De R.I. C.V. y tampoco establece ningún derecho entre el "Grantee" y el Patrón.
Reconocimiento del Documento del Plan. Al aceptar el Otorgamiento de las Unidades de Acciones Restringidas, el "Grantee" reconoce que el "Grantee" ha recibido copias del Plan, ha revisado el Plan y el Contrato en su totalidad y entiende y acepta completamente todas las disposiciones contenidas en el Plan y en el Contrato.
Adicionalmente, al aceptar el Contrato, el "Grantee" reconoce que el "Grantee" ha leído y específica y expresamente ha aprobado los términos y condiciones del Contrato, en el que claramente se ha descrito y establecido que: (i) la participación en el Plan no constituye un derecho adquirido; (ii) el Plan y la participación en el Plan es ofrecida por la Compañía de forma enteramente discrecional; (iii) la participación en el Plan es voluntaria; y (iv) la Compañía, así como su Sociedad Controlante, Subsidiaria no son responsables por cualquier disminución en el valor de las Acciones subyacentes a las Unidades de Acciones Restringidas.
Finalmente, el "Grantee" en este acto declara que el "Grantee" no se reserva ninguna acción o derecho para interponer cualquier demanda o reclamación en contra de la Compañía por compensación, daño o
perjuicio alguno como resultado de su participación en el Plan y, por lo tanto, otorga el más amplio finiquito al Patrón, la Compañía, así como su Sociedad Controlante, Subsidiaria con respecto a cualquier demanda o reclamación que pudiera surgir en virtud del Plan.
NETHERLANDS
Notifications
Securities Law Information. The Grantee should be aware of Dutch insider-trading rules, which may impact the sale of shares of Stock acquired under the Plan. In particular, the Grantee may be prohibited from effectuating certain transactions involving shares of Stock during the period in which Grantee has "inside information" regarding the Company.
By accepting the Restricted Stock Units and participating in the Plan, Grantee acknowledges having read and understood this Securities Law Information and further acknowledges that it is Grantee's responsibility to comply with the following Dutch insider-trading rules:
Under Article 5:56 of the Dutch Financial Supervision Act, anyone who has “inside information” related to an issuing company is prohibited from effectuating a transaction in securities in or from the Netherlands. “Inside information” is defined as knowledge of details concerning the issuing company to which the securities relate, which is not public and which, if published, would reasonably be expected to affect the stock price, regardless of the development of the price. The insider could be a service provider in the Netherlands who has inside information as described herein.
Given the broad scope of the definition of inside information, certain service providers working in the Netherlands (possibly including the Grantee) may have inside information and, thus, would be prohibited from effectuating a transaction in securities in the Netherlands at a time when the Grantee had such inside information.
PANAMA
Notifications
Securities Law Notification. The Restricted Stock Units and any shares of Stock which may be issued to Grantee upon vesting and settlement of the Restricted Stock Units are not subject to registration under Panamanian Law as they are not intended for the public, but solely for Grantee’s benefit.
UNITED KINGDOM
Terms and Conditions
Withholding Taxes. The following provisions supplement Section 13 of the Award Agreement:
Grantee shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to account to HM Revenue & Customs (“HMRC”) with respect to the event giving rise to the Tax-Related Items (the “Chargeable Event”) that cannot be satisfied by the means previously described. If payment or withholding of income tax is not made within ninety (90) days after the Chargeable Event, or, if the Chargeable Event occurs on or after April 6, 2014, within 90 days after the end of the UK tax year in which the Chargeable Event occurs or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003, (the “Due Date”), Grantee agrees that the amount of any uncollected income tax shall (assuming Grantee is not a director or executive officer of the Company (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended)), constitute a loan owed by Grantee to the employer, effective on the Due Date. The loan will bear interest at the then-current official rate of Her Majesty’s Revenue and Customs and it will be immediately due and repayable by the Grantee, and the Company or the employer may recover it at any time thereafter by any of the means referred to in Section 13 of the Award Agreement.
Notwithstanding the foregoing, if the Grantee is a director or executive officer of the Company (within the meaning of Section 13(k) of the 1934 Act), the Grantee will not be eligible for such a loan to cover the unpaid income tax. In the event that the Grantee is such a director or executive officer and the income tax is not collected from or paid by the Grantee by the Due Date, the amount of any uncollected taxes will constitute a benefit to the Grantee on which additional income tax and national insurance contributions (“NICs”) will be payable. The Grantee will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for paying to the Company or the employer, as applicable, any employee NICs due on this additional benefit, which the Company or the employer may recover from the Grantee by any of the means referred to in Section 13 of the Award Agreement.
Attachment A
[Attachment A, the Form of Employee Confidentiality, Non-Competition and Non-Solicitation Agreement by and between certain executives and the Company, has been separately filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as Exhibit 10.14]
Exhibit 10.18
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this “Agreement”) is effective as of December 6, 2013 (the “Effective Date”), by and between Under Armour, Inc. a Maryland corporation (the “Company”), and Robin Thurston (“Executive”), a resident of the State of Texas.
1.Employment. Subject to the terms and conditions contained herein, the Company hereby employs Executive, and Executive hereby accepts employment with the Company.
2.Term. The term of Executive’s employment under this Agreement shall be the period commencing on the date hereof and continuing until December 31, 2016, unless terminated earlier pursuant to section 14 (such period, the “Term”). Executive’s employment with the Company during the Term and any time period after the Term shall be on an at-will basis, which means that, subject to the terms and conditions set forth herein, Executive’s employment is terminable by either the Company or Executive for any reason or no reason, with or without cause.
3.Position and Duties. Executive shall serve as SVP, Digital reporting to the CEO, Kevin Plank and shall be the principal executive responsible for the MapMyFitness business and related digital businesses of the Company. The principal place of Executive’s employment shall be the Company’s office located in Austin, Texas; however, Executive is required to have a presence at the Company’s headquarters in Baltimore, Maryland, for substantial periods from time to time in connection with performing Executive’s employment duties, and Executive is expected to travel to the Company’s headquarters regularly, and other locations as necessary, on Company business during the Term.
4.Exclusivity. Throughout the Term, and except to the extent otherwise authorized by the Company, Executive shall devote Executive’s full business time and energy to the business and affairs of the Company and use Executive’s reasonable best efforts, skills and abilities to promote the interests of the Company and perform Executive’s duties and responsibilities hereunder. Executive represents and warrants that Executive is under no fiduciary, contractual or other legal obligation to another company, venture, business or employer that would prevent Executive from being employed by the Company as set forth herein. This provision shall not be construed to prohibit any activities relating to the management of Executive’s personal investments or to prohibit Executive from serving on corporate, business, civic, religious, educational or charitable boards or committees so long as such activities do not materially interfere with Executive’s performance of his duties and responsibilities hereunder.
5.Compensation and Benefits.
a.Base Salary. Executive shall be paid a base salary (the “Base Salary”) of $350,000 per year, less applicable deductions, payable in installments in accordance with the Company’s customary payroll practices. The Company may, in its sole discretion, adjust the Base Salary, as and when the Company deems appropriate.
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b.Benefits. Subject to and in accordance with the terms and conditions of the Company’s applicable plan documents in force from time to time and applicable law, Executive
will be eligible to participate in all employee benefit plans, programs and arrangements (including, without limitation, any plans, programs and arrangements providing for retirement benefits, disability benefits, health and life insurance, vacation and paid holidays) that the Company makes available to its similarly situated executives generally.
c.Bonuses. For each year of the Term starting January 1, 2014, provided that Executive meets the Company’s high expectations on Executive’s Annual Performance Evaluations, Executive will be eligble to receive a bonus subject to the rules set forth in the Company’s annual Incentive Plan. Executive’s target percentage, also known as the UA House Bonus, is 45% of the Base Salary (the maximum amount payable is 75%) earned during the year of employment for which the UA House Bonus is awarded. Executive shall be eligible to participate in the MapMyFitness Bonus Plan for the year ended December 31, 2013.
d.Equity. Executive will be granted, subject to approval of the Compensation Committee of the Board of Directors, a restricted stock unit grant with a value at grant of $1.2 million with a 2 year (50% vesting per year) vesting schedule and a Performance Stock Unit grant with a value at grant of $750,000. Vesting of the PSU grant is based on the Company’s 2014 and 2015 performance; vest dates, if performance metrics are achieved, will be in February 2016, February 2017, and February 2018. The equity awards shall be subject to the Company’s 2005 Omnibus Long-Term Incentive Plan and standard documents and shall be granted at the time of the Company’s annual equity award grant (which is expected to occur in February 2014). The actual number of shares Executive receives will be based on the five day average stock price immediately prior to grant.
e.Business Expenses. The Company shall reimburse Executive for (or, at the Company’s option, pay) all ordinary, necessary and reasonable business expenses actually incurred by Executive in performing Executive’s duties under this Agreement. All reimbursable expenses shall be appropriately documented by Executive upon submission of any request for reimbursement in a manner consistent with the Company’s expense reporting policies and applicable federal and state tax recordkeeping requirements.
f.Withholdings and Taxes. All compensation payable to Executive hereunder is subject to withholding for all applicable federal, state and local income taxes, and all applicable employment, occupational, Social Security and other similar taxes, and any other amounts as required by law.
g.Clawback. Notwithstanding any other provision in this Agreement to the contrary, any incentive-based compensation, or any other compensation, paid to Executive pursuant to this Agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government regulation or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).
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6. Confidentiality, Non-Competition and Non-Solicitation. Executive acknowledges and agrees that Executive is bound by Executive’s obligations to the Company with respect to confidentiality, non-competition and non-solicitation as set forth in Executive’s “Employee
Confidentiality, Non-Competition, and Non-Solicitation Agreement” (hereinafter “Non-Competition Agreement”) dated as of the date hereof, attached hereto and incorporated herein by reference.
7. Termination; Rights on Termination. Executive’s employment is at-will but the benefits Executive receives upon termination, if any, are dependent on the reason for termination. Upon termination of Executive’s employment for any reason, Executive shall be deemed to have resigned from all positions that Executive holds as an officer or member of the Board of Directors (or a committee thereof) of the Company or any of its affiliates. Executive’s employment may be terminated in any one of the following ways:
a. Termination by the Company for Cause. The Company may terminate the Term and Executive’s employment for Cause (as defined below), and such termination for Cause shall be effective immediately upon provision of notice to Executive that his employment has been terminated for Cause. For purposes of this Agreement, “Cause” means: (i) Executive’s material breach of any material provision of this Agreement or any other agreement to which Executive and the Company and/or its affiliates are parties, (ii) Executive’s willful failure to perform Executive’s duties under this Agreement, (iii) Executive’s willful failure to follow a lawful directive of the Company’s Board of Directors, (iv) Executive’s material failure to comply with the Company’s material written policies or rules, as they may be in effect from time to time, provided that Executive has been provided with written notice of such policies or rules, (v) Executive’s commission of any negligent or intentional act that results in severe harm to the Company, excluding any act Executive takes in good faith that Executive reasonably believed was in the best interests of the Company, (vi) Executive’s use of illegal drugs, (vii) Executive’s material dishonesty, fraud, willful misconduct or breach of fiduciary duty with respect to the business or affairs of the Company, or (viii) Executive’s commission of a felony; offense punishable by imprisonment in a state or federal penitentiary; any offense, civil or criminal, involving material dishonesty, fraud, moral turpitude or immoral conduct; or any crime of sufficient import to potentially discredit or adversely affect the Company’s ability to conduct its business in the normal course ; provided, however, that no termination shall occur pursuant to subsections (i) through (v) herein unless the Company first gives Executive notice of its intention to terminate and of the Cause for such termination, and Executive has not, within fifteen (15) business days following receipt of such notice, cured such Cause to the reasonable satisfaction of the Company. In the event Executive’s employment is terminated by the Company for Cause, no compensation or benefits shall be payable to Executive after the date of such termination, except as provided for in section 7(f) or as otherwise required under the terms of the Company’s employee benefit plans and programs or applicable law.
b. Termination by the Company Without Cause. At any time during the Term, the Company may, without Cause and for any reason whatsoever, terminate the Term and Executive’s employment, effective immediately upon provision of notice to Executive or at such later date specified by the Company. In the event Executive’s employment is terminated without Cause, and provided that Executive fully complies with his obligations under this Agreement and
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executes a general release of all claims as required under section 7(g), then Executive shall be paid compensation pursuant to sections 7(f) and 7(g).
c. Termination by Executive for Good Reason. Executive may terminate the Term and his employment for Good Reason. For purposes of this Agreement, “Good Reason” means the occurrence of any of the following, in each case without Executive’s written consent: (i) a material reduction in Executive’s Base Salary, unless the reduction is part of an overall and nondiscriminatory reduction to the base salaries of all similarly situated employees and the reduction is proportional to the reductions suffered by the other employees, (ii) a relocation of Executive’s principal place of employment to a location more than fifty (50) miles from the location identified in Section 3 (provided, however, that any travel contemplated by Section 3 of this Agreement shall not constitute a relocation), or (iii) a material reduction in Executive’s authority, duties or responsibilities as they exist at the start of this Agreement (other than temporarily while Executive is physically or mentally incapacitated or as required by applicable law). Notwithstanding the foregoing, an occurrence described above which otherwise may constitute Good Reason hereunder shall not constitute Good Reason if: (x) Executive fails to provide written notice to the Company of the occurrence alleged to constitute Good Reason hereunder within fifteen (15) business days after such occurrence initially occurs, (y) the Company cures, corrects or otherwise remedies such occurrence within ten (10) business days after the Company’s receipt of Executive’s written notice hereunder, as determined in the Company’s reasonable judgment, or (z) in the event the Company does not cure, correct or otherwise remedy such occurrence as provided above, Executive fails to resign within ten (10) business days after the end of such cure period. In the event Executive’s employment is terminated by Executive for Good Reason, and provided that Executive fully complies with his obligations under this Agreement and executes a general release of all claims as required under section 7(g), then Executive shall be paid compensation pursuant to sections 7(f) and 7(g).
d. Termination by Executive without Good Reason. Executive may terminate the Term and his employment hereunder without Good Reason upon provision of thirty (30) calendar days’ written notice to the Company. In the event Executive terminates his employment without Good Reason, no compensation or benefits shall be payable to Executive after the date of termination, except as provided for in section 7(f) or as otherwise required under the terms of the Company’s employee benefit plans and programs or applicable law.
e. Termination Upon Death or Disability. The Term and Executive’s employment with the Company will terminate immediately upon the death of Executive, and may be terminated by the Company upon the Disability of Executive. The term “Disability” for purposes of this Agreement means the inability of Executive to perform Executive’s essential duties and responsibilities (even with reasonable accommodation) under this Agreement for a period of more than ninety (90) consecutive days or one hundred and eighty (180) non-consecutive days during any twelve (12) month period by reason of a mental or physical disability as determined by the Board of Directors of the Company in its reasonable discretion. In the event Executive’s employment is terminated due to Executive’s death or Disability, Executive, or Executive’s estate as applicable, shall receive the benefits set forth in section 7(f), and as otherwise required under the terms of the Company’s employee benefit plans and programs or applicable law.
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f. Payment Through Termination. Upon termination of Executive’s employment for any reason, Executive (or Executive’s estate, in the case of a termination due to Executive’s death) shall be entitled to receive any accrued but unpaid Base Salary and all benefits and reimbursements due through the effective date of termination (collectively, the “Accrued Amounts”). The Accrued Amounts will be paid in accordance with the Company’s standard payroll procedures, except that Executive’s rights under any employee benefit plan or program of the Company shall be governed by the terms of such plan or program and applicable law.
g. Payment for Termination By the Company Without Cause or By Executive for Good Reason. In the event Executive’s employment is terminated by the Company without Cause (other than pursuant to death or Disability) or by Executive for Good Reason, and provided that Executive fully complies with his obligations under this Agreement and executes and returns to the Company, within twenty-one (21) days after Executive’s termination (or such longer period as may be required by applicable law), a full and complete release of all claims against the Company, its affiliates, and their respective employees, officers, and directors, in a form reasonably acceptable to the Company (the “Release”), and provided, further, that Executive does not revoke the Release, then the Company shall pay Executive, in addition to the Accrued Amounts, an amount equal to (x) twenty-four months, in the event the termination occurs in 2013 or 2014, eighteen months, in the event the termination occurs in 2015 or twelve months, in the event the termination occurs in 2016, of Employee’s base salary as in effect on the date of termination, less required withholdings, and (z) a pro-rata bonus for the year in which the employment is terminated based on the number of days worked during the year, less required withholdings. Such amount will be payable in accordance with the Company’s regular payroll practices, commencing on the sixtieth (60th) day after the date of termination (but with the first payment being a lump sum payment covering all payment periods from the date of termination through the date of such first payment), provided that the Release has become final and irrevocable. Executive’s rights under any employee benefit plan or program of the Company shall be governed by the terms of such plan or program and applicable law.
h. COBRA Payments for Termination By the Company Without Cause or By Executive for Good Reason. If Executive complies with the conditions set forth in section 7(g) and timely and properly elects continuation coverage under the Consolidated Omnibus Reconciliation Act of 1985 (“COBRA”), the Company shall pay Executive’s COBRA premiums for 12 months to enable Executive to continue Executive’s medical (including prescription), dental and vision insurance coverage on the same terms as existed prior to Executive’s termination, (subject to any future changes in coverage that the Company makes for other full-time employees).
i. Right to Offset. In the event of any termination of Executive’s employment under this Agreement for any reason, the Company’s obligation to make any payments hereunder shall be subject to reasonable offset for any outstanding amounts that the parties agree Executive owes to the Company. All payments and benefits payable under this Agreement are gross payments subject to applicable taxes and withholdings.
8. Return of Company Property. Executive agrees that upon the termination of his employment for any reason, or upon the Company’s request at any time, Executive shall (i)
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immediately deliver to the Company all tangible and intangible property owned by the Company, including, without limitation, access cards, keys, computers, computing devices, cell phones, memory devices, computer files, notes, documents, records and any other tangible item, together with all copies of any of the foregoing, and any other material containing, summarizing, referencing, or incorporating in any way or otherwise disclosing any Confidential Information (as defined in the Non-Competition Agreement) or Works for Hire (as defined in the Non-Competition Agreement), and (ii) immediately delete and erase from any tangible and intangible property not owned by the Company and within the possession or control of Executive any material containing, summarizing, referencing, or incorporating in any way or otherwise disclosing any Confidential Information or Works for Hire.
9. Cooperation. During the Term and thereafter, Executive shall reasonably and appropriately respond to all reasonable inquiries from the Company relating to any current or future investigation, regulatory action, or litigation (including but not limited to any internal or external investigations), and shall make himself reasonably available to confer with the Company and/or its counsel and otherwise provide such reasonable assistance, information and/or testimony, as the Company and/or its counsel may deem necessary in connection with such investigation, regulatory action, or current or future litigation arising from actions or events occurring during Executive’s employment with the Company. If the Company requires assistance in accordance with this section 9, the Company shall reimburse Executive for any reasonable out of pocket expenses of Executive incurred in connection with Executive’s provision of such assistance.
10. Non-disparagement. Executive shall not at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments or statements concerning the Company (including negative references to the Company’s products, services, policies, directors, officers or employees). Notwithstanding the foregoing, nothing in this Agreement shall apply to or restrict in any way the communication of any information by Executive, in whatever form, to (i) any person acting on behalf of the Company in connection with any internal investigation or review, (ii) any person acting on behalf of a government agency conducting an investigation about which Executive has relevant information, or (iii) any other person if required by a lawfully issued subpoena or court order. If Executive responds or communicates with any party or entity described in clause (ii) or (iii) of the preceding sentence, Executive shall notify the Company in advance of such response or communication. No executive officer of the Company shall at any time make, publish or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments or statements concerning Executive. Notwithstanding the foregoing, nothing in this Agreement shall apply to or restrict in any way the communication of any information by the Company, in whatever form, to any person or entity if required by a lawfully issued subpoena or court order. If the Company responds or communicates with any party or entity described in the preceding sentence, the Company shall notify Executive in advance of such response or communication.
11. Indemnification. In the event Executive is made, or threatened to be made, a party to any legal action or proceeding, by reason of the fact that Executive is or was an employee or officer of the Company or serves or served any other entity in any capacity at the Company’s request, Executive shall be indemnified by the Company. During Executive’s
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employment with the Company and thereafter, so long as Executive may have liability arising out of his service as an officer or director of the Company, the Company agrees to continue and maintain a director’s and officer’s liability insurance policy covering Executive with coverage no less than that available to active directors and officers of the Company.
12. Notices.
a. All notices provided for or required by this Agreement shall be in writing and shall be deemed to have been properly given when sent to the other party by facsimile (confirmation of receipt required) or when received by the other party if mailed by certified or registered mail, return receipt requested, as follows:
If to the Company: | Under Armour, Inc. | ||
Attn: John Stanton, SVP General Counsel | |||
1020 Hull Street | |||
Baltimore, MD 21230 | |||
with copies to (which shall not constitute notice): | ||
King & Spalding LLP | |||
Attn: William Roche | |||
1180 Peachtree Street, N.E. | |||
Atlanta, Georgia 30309 | |||
If to Executive: | Robin Thurston | ||
2901 Clearview Drive | |||
Austin TX 78703BA | |||
b. Either party hereto may change the address to which notice is to be sent by written notice to the other party in accordance with the provisions of this section 19.
c.
13. Entire Agreement. This Agreement constitutes a single integrated contract expressing the entire agreement of the parties, and supersedes and replaces any and all other agreements, written or oral, express or implied, between Executive, on the one hand, and the Company or MapMyFitness, Inc., on the other hand, concerning the subject matter hereof, with the exception of the Non-Competition Agreement and the Merger Noncompetition Agreement between the Company and the Executive dated as of the date hereof, which remains in full force and effect. For the avoidance of doubt, any written agreements between the Executive and the Company or its affiliates entered into in connection with the acquisition of MapMyFitness by the Company shall not be superseded or replaced by this Agreement.
14. Waiver. The waiver by any party to this Agreement of a breach of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent or simultaneous breach of the same or different provisions.
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15. Governing Law; Venue. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed, and governed by and in accordance with the laws of the State of Maryland, irrespective of its choice-of-law rules. Any action arising under or related to this Agreement, Executive’s employment with the Company, or the cessation of Executive’s employment with the Company shall be filed exclusively in the state or federal courts with jurisdiction over Baltimore City, Maryland and each of the parties hereby consents to the jurisdiction and venue of such courts.
16. Assignability. This Agreement is personal to Executive and may not be assigned by Executive. Any purported assignment by Executive shall be null and void from the initial date of the purported assignment. This Agreement shall be assignable by the Company and shall inure to the benefit of the Company and its successors and assigns.
17. Headings and Captions. The headings and captions used in this Agreement are for convenience of reference only, and shall in no way define, limit, expand or otherwise affect the meaning or construction of any provision of this Agreement.
18. Counterparts Acceptable. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.
19. Severability. Should any provision of this Agreement be declared or determined by any court of competent jurisdiction to be unenforceable or invalid for any reason, the validity of the remaining parts, terms or provisions of this Agreement shall not be affected thereby and the invalid or unenforceable part, term or provision shall be deemed not to be a part of this Agreement.
20. Third Party Beneficiaries. The parties agree that the affiliates of the Company are intended third party beneficiaries of this Agreement, with full rights to enforce this Agreement. Except as stated in the preceding sentence, this Agreement does not confer any rights or remedies upon any person or entity other than the parties to this Agreement and their respective successors and permitted assigns.
21. Interpretation. No provision of this Agreement or any related document shall be construed against or interpreted to the disadvantage of any party hereto by reason of such party’s having or being deemed to have structured or drafted such provision.
22. Modification. No provision of this Agreement may be modified or waived except in writing signed by Executive and a duly authorized representative of the Company. The writing shall specifically reference this Agreement and the provision that the Company and Executive intend to waive or modify. Notwithstanding the foregoing, if it is determined by a court of competent jurisdiction that any restrictive covenant set forth in this Agreement is excessive in duration or scope or is unreasonable or unenforceable, it is the intention of the parties that such restriction may be modified by the court to render it enforceable to the maximum extent permitted by law.
23. Survival. Executive’s obligations under this Agreement shall survive the expiration or termination of this Agreement for any reason and shall thereafter be enforceable
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whether or not such termination is claimed or found to be wrongful or to constitute or result in a breach of any contract or of any other duty owed or claimed to be owed to Executive by the Company.
24. Code Section 409A. This Agreement is intended to comply with Section 409 of the Internal Revenue Code of 1986, as amended (“Section 409A”), or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay
due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of employment shall only be made upon a “separation from service” under Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by Executive on account of non-compliance with Section 409A.
25. Waiver of Jury Trial. THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY, OR OTHERWISE. THE PARTIES TO THIS AGREEMENT EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
[signature page follows]
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IN WITNESS WHEREOF, the parties are signing this Agreement to be effective as of the Effective Date.
UNDER ARMOUR, INC.
By: /s/ Brad Dickerson
Name: Brad Dickerson
Title: Chief Financial Officer
EXECUTIVE
/s/ Robin Thurston
Name: Robin Thurston
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AMENDMENT NO. 1
dated as of February 9, 2016
to
Employment Agreement
dated as of December 6, 2013
This Amendment No. 1 (the “Amendment”) is made as of February 9, 2016, by and between Under Armour, Inc., a Maryland corporation (the “Company”) and Robin Thurston (“Executive”), a resident of the State of Texas, to the Employment Agreement dated as of December 6, 2013 between the parties (the “Employment Agreement” and, as amended the “Amended Employment Agreement”).
1.Section 5.d of the Employment Agreement is hereby amended to delete the reference to “a restricted stock unit grant with a value at grant of $1.2 million with a 2 year (50% vesting per year) vesting schedule and”.
2.In lieu of Executive being granted the restricted stock unit grant referred to in the deleted language described in Section 1 of this Amendment, Executive has been awarded a restricted stock unit grant with respect to 22,169 shares of the Company’s Class A common stock, with 14,780 shares vesting February 15, 2016, 3,694 shares vesting February 15, 2017 and 3,695 shares vesting February 15, 2018. The terms of the equity award have been set forth in a grant agreement between the Company and Executive.
3.This Amendment may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one instrument.
IN WITNESS WHEREOF, the parties are signing this Amendment to be effective as of the date listed above.
UNDER ARMOUR, INC.
By:/s/ John P. Stanton
Name:John P. Stanton
Title: Senior Vice President, General
Counsel, Secretary
EXECUTIVE
/s/ Robin Thurston
Name: Robin Thurston
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Exhibit 10.19
RESTRICTED STOCK UNIT GRANT AGREEMENT
THIS AGREEMENT, made as of this 9th day of February, 2016, (the “Agreement”) between UNDER ARMOUR, INC. (the “Company”) and Robin Thurston (the “Grantee”).
WHEREAS, the Company has adopted the Second Amended and Restated 2005 Omnibus Long‑Term Incentive Plan, as amended (the “Plan”), which has been delivered or made available to Grantee, to promote the interests of the Company and its stockholders by providing the Company’s key employees and others with an appropriate incentive to encourage them to continue in the employ of the Company and to improve the growth and profitability of the Company; and
WHEREAS, the Plan provides for the Grant to Grantees in the Plan of restricted share units for shares of Stock of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:
1.Investment. The Grantee represents that the Restricted Stock Units (as defined herein) are being acquired for investment and not with a view toward the distribution thereof.
2.Grant of Restricted Stock Units. Pursuant to, and subject to, the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Grantee an Award of Restricted Stock Units for 22,169 shares of Stock of the Company (collectively, the “Restricted Stock Units”). The Purchase Price for the Restricted Stock Units shall be paid by the Grantee’s services to the Company.
3.Grant Date. The Grant Date of the Restricted Stock Units hereby granted is February 9, 2016.
4.Incorporation of the Plan. All terms, conditions and restrictions of the Plan are incorporated herein and made part hereof as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of this Agreement, as interpreted by the Board, or a Committee thereof, shall govern. Unless otherwise indicated herein, all capitalized terms used herein shall have the meanings given to such terms in the Plan.
5.Vesting and Delivery Date. (a) Except as otherwise provided by Section 5(b), the Restricted Stock Units shall vest in accordance with the following schedule: 14,780 Restricted Stock Units shall vest on February 15, 2016, 3,694 Restricted Stock Units shall vest on February 15, 2017, and 3,695 Restricted Stock Units shall vest on February 15, 2018; provided that (i) the Grantee remains continuously employed by the Company through each such applicable vesting date, and (ii) the Grantee has duly executed this Agreement prior to the first such vesting date.
(b) Notwithstanding the foregoing, in the event that the Grantee’s employment is terminated upon the occurrence of an event specified in subclauses i. or ii. below, the Restricted Stock Units shall vest on the dates specified below:
i. In the event of the Grantee’s death or Disability at any time, all of the Restricted Stock Units shall immediately vest on such date of termination; and
ii. In the event the Grantee is terminated without Cause (as defined below), all of the Restricted Stock Units shall immediately vest on such date of termination; provided, however, that in connection with a termination without Cause related to a Change in Control, the provisions of Section 6 shall apply.
(c) On the first business day after each vesting date, the Company shall deliver to Grantee the shares of stock to which the Restricted Stock Units relate.
6.Change in Control.
(a)In the event of a Change in Control in which the Restricted Stock Units will not be continued, assumed or substituted with Substitute Awards (as defined below), all of the Restricted Stock Units not otherwise forfeited shall vest immediately on the day immediately prior to the date of the Change in Control.
(b)In the event of a Change in Control following which the Restricted Stock Units will be continued, assumed or substituted with Substitute Awards, any Substitute Awards shall vest in installments as set forth in Section 5.
(c)If the Restricted Stock Units are substituted with Substitute Awards as set forth in subclause (b) of this Section 6, and within 12 months following the Change in Control the Grantee is terminated by the Successor (or an affiliate thereof) without Cause or resigns for Good Reason, the Substitute Awards shall immediately vest upon such termination or resignation.
(d)On the first business day after each vesting date set forth in Sections 6(a), (b) or (c), as applicable, the Company shall deliver to Grantee the shares of stock to which the Restricted Stock Units or Substitute Awards relate.
(e)The following definitions shall apply to this Section 6:
i.“Cause” shall mean the occurrence of any of the following: (a) the Grantee’s material misconduct or neglect in the performance of his or her duties; (b) the Grantee’s commission of any felony; offense punishable by imprisonment in a state or federal penitentiary; any offense, civil or criminal, involving material dishonesty, fraud, moral turpitude or immoral conduct; or any crime of sufficient import to potentially discredit or adversely affect the Company’s ability to conduct its business in the normal course; (c) the Grantee’s material breach of the Company’s written Code of Conduct, as in effect from time to time; (d) the Grantee’s commission of any act that results in severe harm to the Company excluding any act taken by the Grantee in good faith that he or she reasonably believed was in the best interests of the Company; or (e) the Grantee’s material breach of the Employee Confidentiality, Non-Competition and Non-Solicitation Agreement by and between Grantee and the Company (the “Confidentiality, Non-Compete and Non-Solicitation Agreement”) attached hereto as Attachment A. However, none of the foregoing events or conditions will constitute Cause unless the Company provides Grantee with written notice of the event or condition and thirty (30) days to cure such event or condition (if curable) and the event or condition is not cured within such 30-day period.
ii.“Good Reason” shall mean the occurrence of any of the following events: (a) a diminishment in the scope of the Grantee’s duties or responsibilities with the Company; (b) a reduction in the Grantee’s current base salary, bonus opportunity or a material reduction in the aggregate benefits or perquisites; or (c) a requirement that the Grantee relocate more than fifty (50) miles from his or her primary place of business as of the date of a Change in Control, or a significant increase in required travel as part of the Grantee’s duties and responsibilities with the Company. However, none of the foregoing events or conditions will constitute Good Reason unless (i) Grantee provides the Company with written objection to the event or condition within ninety (90) days following the occurrence thereof, (ii) the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving such written objection, and (iii) Grantee resigns his or her employment within thirty (30) days following the expiration of such cure period.
iii.An award will qualify as a “Substitute Award” if it is assumed, substituted or replaced by the Successor with awards that, solely in the discretion of the Compensation Committee of the Board, preserves the existing value of the outstanding Restricted Stock Units at the time of the Change in Control and provides vesting and payout terms that are at least as favorable to Grantee as the vesting and payout terms applicable to the Restricted Stock Units.
iv.“Successor” shall mean the continuing or successor organization, as the case may be, following the Change in Control.
7.Forfeiture. Subject to the provisions of the Plan and Sections 5 and 6 of this Agreement, with respect to the Restricted Stock Units which have not become vested on the date the Grantee’s employment is terminated, the Award of Restricted Stock Units shall expire and such unvested Restricted Stock Units shall immediately be forfeited on such date.
8. Employee Confidentiality, Non-Competition and Non-Solicitation Agreement. As a condition to the grant of the Restricted Stock Units, Grantee shall have executed and become a party to the Confidentiality, Non-Compete and Non-Solicitation Agreement.
9.No Shareholder Rights. Grantee does not have any rights of a shareholder with respect to the Restricted Stock Units. No dividend equivalents will be earned or paid with regard to the Restricted Stock Units.
10.Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party hereto upon any breach or default of any party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party or any provisions or conditions of this Agreement, shall be in writing and shall be effective only to the extent specifically set forth in such writing.
11.Integration. This Agreement and the Plan contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein and in the Plan. This Agreement and the Plan supersede all prior agreements and understandings between the parties with respect to its subject matter.
12.Withholding Taxes. Grantee agrees, as a condition of this grant, that Grantee will make acceptable arrangements to pay any withholding or other taxes that may be due as a result of vesting in Restricted Stock Units or delivery of shares acquired under this grant. In the event that the Company determines that any federal, state, local, municipal or foreign tax or withholding payment is required relating to the vesting in Restricted Stock Units or delivery of shares arising from this grant, the Company shall have the right to require such payments from Grantee in the form and manner as provided in the Plan. The Grantee authorizes the Company at its discretion to satisfy its withholding obligations, if any, by one or a combination of the following:
(a) | withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company; or |
(b) | withholding from proceeds of the sale of shares of Stock acquired upon settlement of the Restricted Stock Units either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); or |
(c) | withholding in shares of Stock to be issued upon settlement of the Restricted Stock Units; or |
(d) | by any other method deemed by the Company to comply with applicable laws. |
.
13.Data Privacy. In order to administer the Plan, the Company may process personal data about Grantee. Such data includes but is not limited to the information provided in this Agreement and any changes thereto, other appropriate personal and financial data about the Grantee such as home address and business address and other contact information, payroll information and any other information that might be deemed appropriate by the Company to facilitate the administration of the Plan. By accepting this grant, Grantee gives explicit consent to the Company to process any such personal data. Grantee also gives explicit consent to the Company to transfer any such personal data outside the country in which Grantee works or is employed, including, with respect to non-U.S. resident Grantees, to the United States, to transferees who shall include the Company and other persons who are designated by the Company to administer the Plan.
14.Electronic Delivery. The Company may choose to deliver certain statutory materials relating to the Plan in electronic form. By accepting this grant Grantee agrees that the Company may deliver the Plan prospectus and the Company’s annual report to Grantee in an electronic format. If at any time Grantee would prefer to receive paper copies of these documents, as Grantee is entitled to receive, the Company would be pleased to provide copies. Grantee should contact TotalRewards@underarmour.com to request paper copies of these documents.
15.Counterparts; Electronic Signature. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. This Agreement may be signed by the Company through application of an authorized officer’s signature, and may be signed by Grantee through an electronic signature.
16.Governing Law; Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Maryland, without regard to the provisions governing conflict of laws. For purposes of litigating any dispute that arises under this Award of Restricted Stock Units or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Maryland, and agree that such litigation will be conducted in the jurisdiction and venue of the United States District Court for the District of Maryland or, in the event such jurisdiction is not available, any of the appropriate courts of the State of Maryland, and no other courts.
17.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
18.Grantee Acknowledgment. The Grantee hereby acknowledges receipt of a copy of the Plan. The Grantee hereby acknowledges that all decisions, determinations and interpretations of the Board, or a Committee thereof, in respect of the Plan, this Agreement and this Award of Restricted Stock Units shall be final and conclusive.
The Company has caused this Agreement to be duly executed by its duly authorized officer and said Grantee has hereunto signed this Agreement on the Grantee’s own behalf, thereby representing that the Grantee has carefully read and understands this Agreement and the Plan as of the day and year first written above.
UNDER ARMOUR INC. | |||
By: /s/ John Stanton | |||
GRANTEE | |||
/s/ Robin Thurston | |||
Attachment A
EMPLOYEE CONFIDENTIALITY, NON-COMPETITION, AND NON-SOLICITATION AGREEMENT
Robin Thurston (“Employee”) and Under Armour, Inc. (together with its affiliates, the “Company”) previously entered into an Employee Confidentiality, Non-Competition, and Non-Solicitation Agreement (“Agreement”), dated December 6, 2013. The Employee and the Company hereby reaffirm the Agreement and all of the obligations and terms and conditions set forth in the Agreement. If you would like a copy of your Agreement please contact the Human Resources department.
Date: February 9, 2016
UNDER ARMOUR, INC.
/s/ John Stanton
By: John Stanton
Title: SVP, General Counsel & Corporate Secretary
EMPLOYEE
/s/ Robin Thurston
Robin Thurston
EMPLOYEE CONFIDENTIALITY, NON-COMPETITION, AND
NON-SOLICITATION AGREEMENT
This Confidentiality, Non-Competition, and Non-Solicitation Agreement (“Agreement”) is entered into this 6th day of December, 2013, by Under Armour, Inc. (together with its affiliates, the “Company”) and Robin Thurston (“Employee”). For the avoidance of doubt, references to the “Company” shall include MapMyFitness, Inc., a Delaware corporation (“MMF”).
EXPLANATORY NOTE
Employee recognizes that Employee has had or will have access to confidential business information during the course of his or her employment, the improper disclosure or use of which during or after Employee’s employment would create unfair competition and would likely cause substantial loss and harm to the Company. Employee may also be provided specialized training by the Company and be responsible for generating and/or maintaining the goodwill of the Company with its Customers, Suppliers, employees and others. Employee further acknowledges that employment or continued employment with the Company is based on Employee's agreement to abide by the covenants contained herein.
NOW THEREFORE, in consideration of Employee’s employment or continued employment with the Company and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Parties agree as follows:
1.Confidentiality. Employee acknowledges Employee’s fiduciary duty and duty of loyalty to the Company, and the obligations arising from them not to disclose business information provided or acquired on a confidential basis. Further, Employee acknowledges that the Company, in reliance on this Agreement, will provide Employee access to trade secrets,
customers, proprietary data and/or other Confidential Information. Employee agrees to retain this information as confidential and not to use this information for Employee’s personal benefit or the benefit of anyone other than the Company or to disclose it to any third party, except when required to do so to properly perform duties for the Company. Further, as a condition of employment, during the time Employee is employed by the Company and continuing after any termination of Employee’s employment, Employee agrees to protect and hold in a fiduciary capacity for the benefit of the Company all Confidential Information, as defined below, unless Employee is required to disclose Confidential Information pursuant to the terms of a valid and effective order issued by a court of competent jurisdiction or a governmental authority. In the event that Employee receives an order or other legal demand, such as a subpoena, discovery request, or order of a court or other body having jurisdiction over such matter, to produce any Confidential Information or other information concerning the Company, Employee agrees to promptly provide the Company with written notice of such subpoena, order, demand or discovery request so that the Company may timely move to quash if appropriate. Employee shall use Confidential Information solely for the purpose of carrying out those duties assigned to Employee and not for any other purpose. The disclosure of Confidential Information to Employee shall not be construed as granting to Employee any license under any copyright, trade secret, or right of ownership or any other right to use the Confidential Information whatsoever.
(a) For purposes of this Agreement, “Confidential Information” shall mean all information concerning the Company’s business that is not generally known to the public and which became known to the Employee in the course of or by virtue of employment with the Company. Confidential Information shall include, but shall not be limited to designs, drawings, formulas, processes, methods, techniques, systems, models, samples, prototypes, contracts, reports, letters, notes, intellectual property, trade secrets and/or know-how, technical information, financial information and metrics (whether historical, projections or forecasts), and information concerning advertising, pricing, costs, business planning, operations, procedures, services, potential services, products, potential products, products under development,
production, purchasing, marketing, sales, personnel (including identities, contact information, skills, performance, salary and benefits of other employees), customers, suppliers, or other information of the Company; any papers, data, records, devices, equipment, compilations, invoices, customer or supplier lists or contact information, compilations of names and addresses, or documents of the Company; any confidential information or trade secrets of any third party provided to the Company in confidence or subject to other use or disclosure restrictions or limitations; and any other information, written, oral, electronic, or retained in Employee’s memory, whether existing now or at some time in the future, whether pertaining to current or future developments or prospects, and whether created, revealed or accessed during the Employee’s employment, which pertains to the Company’s affairs or interests or with whom or how the Company does business. The Company acknowledges and agrees that Confidential Information shall not include information which is or becomes publicly available other than as a result of a disclosure by the Employee or through other wrongful means.
(b) Employee shall promptly notify the Company if he or she has reason to believe that the unauthorized use, possession, or disclosure of any Confidential Information has occurred or may occur.
(c) All physical or otherwise transferrable items containing Confidential Information, including, but not limited to documentary, electronic or other recorded versions of any Confidential Information, shall remain the exclusive and confidential property of the Company and shall be immediately returned, along with any copies or notes that Employee made thereof or therefrom, to the Company when Employee ceases employment with the Company. Employee further agrees to immediately return upon request by the Company copies of any Confidential Information contained on Employee’s home computer, portable computer or other data storage device (including but not limited to cell phones, zip drives, PDAs, iPads, etc.). Employee agrees to delete or destroy all copies of Confidential Information that are stored on any devices, networks, storage locations or media not owned by the Company and in Employee's possession or control. Employee also agrees to allow the Company, in its discretion at the
termination of Employee’s employment and thereafter upon reasonable notice and for reasonable cause, access to any home computer, portable computer or other data storage device maintained by Employee, including but not limited to, for the purpose of determining whether said Confidential Information has been misappropriated. Employee further acknowledges that all documents and records relating to Company business, including but not limited to those that he or she prepares or assists in preparing during employment with the Company, belong to the Company and Employee agrees to promptly return them and all other property belonging to the Company, upon the termination of Employee’s employment. Additionally any personal mobile device used to perform work for the Company or on the Company’s behalf is subject to the Company’s Bring Your Own Device to Work Policy and thus subject to the Company’s right to remove any Confidential Information from those devices as more specifically described in the Bring Your Own Device to Work Policy.
2. | Ownership of Works for Hire. | |
(a) Employee agrees that any inventions, ideas, developments, methods, improvements, discoveries, innovations, software, works of authorship and any other intangible property (hereinafter collectively referred to as “Intellectual Property”), whether patentable or not, that are developed (in whole or in part), considered, contemplated or reduced to practice by Employee or under his or her direction or jointly with others during his or her employment with the Company, whether or not during normal working hours or on the premises of the Company, shall be considered “Works for Hire” for the exclusive use by and benefit of the Company. Employee will make full and prompt disclosure to the Company of all such Works for Hire. Regardless of such disclosure, the Company shall own all rights to any Works for Hire, including without limitation all related patent rights and copyrights, items and developments that are subject to being patented and copyrighted, and the right to market (or not to market) any such property, and Employee agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all his or her rights, title and interest in and to all Works for Hire and all related patents, patent applications, copyrights and copyright applications.
(b) Employee agrees to cooperate fully with the Company, both during and after his or her employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights and patents (both in the United States and foreign countries) relating to Works for Hire. Employee shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights, and powers of attorney that the Company may deem necessary or desirable in order to protect its rights and interests in any Works for Hire.
(c) The Employee specifically acknowledges that his or her compensation and benefits constitute full payment for any Works for Hire and waives any claim of right to such Works for Hire, which Employee further acknowledges belong entirely to the Company.
(d) The Company may, at its election and in its discretion, waive and/or relinquish any of its rights of ownership and royalties with respect to any Works for Hire, by agreeing to do so in a written instrument executed by the Company.
3.Definitions. For purposes of this Agreement, the following terms have the meanings defined below.
(a)“Competitor Businesses” shall mean any business that at the time the Company seeks to enforce this covenant:
(1)competes with the Company in the business of premium branded performance athletic (a) apparel, (b) footwear, (c) equipment and/or (d) accessories (including, for example, and not by way of limitation, companies such as Nike, Adidas, Reebok, lululemon, Columbia, New Balance, Brooks, Puma or other premium athletic brands); or
(2)competes with any other line of business that the Company is involved with at the time of Employee’s termination and in relation to which line of business Employee had access to and/or knowledge of Confidential Information or had engaged in establishing goodwill for the Company with its Customers or Suppliers.
(b)“Customer” shall mean any individual, business, or entity that (a) purchased products or services from the Company within the final twelve (12) months of Employee’s employment; and (b) Employee had business contact with or provided services to, whether individually or with others, on behalf of the Company during the final twelve (12) months of Employee’s employment. “Prospective Customer” shall mean any individual, business, or entity that Employee solicited or pursued, or assisted in soliciting or pursuing within the final twelve (12) months of Employee’s employment for the purpose of selling products or services of the Company. Customers or Prospective Customers include, but are not limited to wholesale distribution channels, which include independent and specialty retailers, institutional athletic departments, leagues and teams, national and regional sporting goods chains and department store chains.
(c)“Supplier” shall mean any individual, business, or entity (a) from whom the Company purchased products or services within the final twelve (12) months of Employee’s employment; and (b) with whom Employee had business contact and obtained products and services on behalf of the Company during the final twelve (12) months of Employee’s employment. “Prospective Supplier” shall mean any individual, business, or entity with whom Employee had business contact with and from whom Employee sought to obtain products or services from on behalf of the Company in the final twelve (12) months of Employee’s employment. Suppliers or Prospective Suppliers include but are not limited to consultants, vendors, factories, and mills.
4.Non-Competition. Employee hereby covenants and agrees that at no time during the Employee’s employment with the Company and through December 31, 2016 or for a period of one (1) year immediately following termination of Employee’s employment with the Company, whichever is later, whether voluntary or involuntary (the “Restricted Period”), shall Employee, without the prior written consent of the Company:
(a)directly or indirectly work for, be contracted to or contract with, or provide strategic advice to a Competitor Business in a capacity that is the same as or similar to the capacity in which Employee worked for the Company and/or in a capacity in which Employee’s knowledge of the Company’s Confidential Information, and/or previous establishment of goodwill for the Company with its Customers or Suppliers, would be of value in Employee’s work for the Competitor Business; or
(b)compete with the Company directly or indirectly as employee, principal, agent, contractor, or otherwise in the sale or licensing of any products or services that at the time the Company seeks to enforce this Agreement, are competitive with the products or services developed, marketed, or sold by the Company and about which products and services Employee’s knowledge of the Company’s Confidential Information and/or previous establishment of goodwill with Customers or Suppliers would be of value in competing with the Company.
5.Non-Solicitation and Non-Interference. Employee hereby covenants and agrees that at no time during the Restricted Period shall the Employee:
(a)directly or indirectly solicit or influence, or contact for purposes of soliciting or influencing, any Customer or Supplier, or Prospective Customer or Supplier, to terminate or adversely modify its relationship with the Company or to do business with a Competitor Business instead of the Company, nor shall Employee assist others in any such soliciting, influencing, contacting, communicating, or otherwise diverting such business; or
(b)directly or indirectly interfere with any transaction, agreement or business relationship in which the Company was involved during the Employee’s employment with the Company and about which Employee is aware because of his/her employment with the Company; or
(c)directly or indirectly solicit or induce any then-current employee of the Company that the Employee worked with or came to know as a result of Employee’s
employment with the Company, to leave employment with the Company, or interfere in any way with such employment, and will not participate in the hiring of any such employee, including, without limitation, by identifying or targeting the Company’s employees for that purpose and/or engaging them in new employment. Employee further agrees not to contact any such employee of the Company or to cause the employee to be contacted for the purpose or foreseeable effect of causing or inducing the employee to leave the Company’s employment; or
(d)act in any way, directly or indirectly, with the purpose or effect of soliciting, diverting or taking away any Customer or Supplier of the Company.
6.Additional Consideration. As additional consideration for the Non-Competition obligations described in Paragraph 4 above, should the Company pursuant to those obligations require Employee to refrain from accepting employment or other work he or she has been offered that the Company, in its discretion, believes would violate Employee’s obligations, the Company shall pay Employee an amount equal to sixty percent (60%) of Employee’s weekly base pay as of the date of Employee’s termination from the Company (“Non-Competition Payment”). The Non-Competition Payment shall begin when the Company advises Employee of its belief that the proposed employment would violate the Employee’s non-compete obligations and shall continue throughout the remaining duration of the Restricted Period. The Non-Competition Payment shall be paid in accordance with the Company’s customary pay practices in effect at the time each payment is made, and shall be reduced by (a) the amount of severance, if any, that Employee receives from the Company; and (b) the amount of any pay received during the Restricted Period from employment in any capacity to the extent that any such salary exceeds forty percent (40%) of Employee’s base pay as of the date of Employee’s termination from employment, annualized or pro-rated to correspond with the remaining portion of the Restricted Period following the job offer. (By way of example, assuming an Employee’s remaining Restricted Period following a job offer is six (6) months and that his or her base pay at the time of termination was $100,000, the Non-Competition Payment would not be reduced
unless the salary earned by the Employee during the Restricted Period exceeded $20,000. In the event the salary earned during the Restricted Period exceeds this threshold, the Non-Competition Payment will be reduced, or eliminated, pro rata.). Any consideration paid to Employee pursuant to Sections 7(f) and 7(g) of the Employment Agreement satisfies the Non-Competition Payment.
7.Notification of New Employment. Employee acknowledges and agrees that for a period of one (1) year following the date of termination of Employee’s employment with the Company, Employee will inform the Company, prior to the acceptance of any job or any work as an independent contractor, of the identity of any new employer or other entity to which Employee is providing consulting or other services, along with Employee’s starting date, title, job description, salary, and any other information that the Company may reasonably request to confirm Employee’s compliance with the terms of this Agreement. Failure to provide all of this information to the Company may result in forfeiture of the Non-Competition Payment described above.
8.Reasonableness of Restrictions. Employee acknowledges and represents that he or she fully understands this Agreement and has had the opportunity to have it explained by legal counsel of his or her choosing. Employee acknowledges that the restrictions imposed by this Agreement are fair and reasonably required for the protection of the Company and its legitimate business interests, and will not preclude Employee from becoming gainfully employed following the termination, for any reason, of Employee’s employment with the Company. Employee acknowledges that these covenants have substantial and immeasurable value to the Company.
9.Injunctive Relief. Employee acknowledges and agrees that a breach of any of the restrictive covenants set forth in this Agreement would cause irreparable damage to the Company, the exact amount of which would be difficult to determine, and that the remedies at law for any such breach would be inadequate. Accordingly, Employee agrees that, in addition to any other remedy that may be available at
law, in equity, or hereunder, the Company shall be entitled to specific performance and injunctive relief, without posting bond or other security, to enforce or prevent any breach of any of the restrictive covenants set forth in this Agreement. In any action for injunctive relief, the prevailing party will be entitled to collect reasonable attorneys’ fees and other reasonable costs from the non-prevailing party.
10. Tolling. In the event the enforceability of any of the restrictive covenants in this Agreement are challenged in a claim or counterclaim in court during the time periods set forth in this Agreement for such restrictive covenants, and Employee is not immediately enjoined from breaching any of the restrictive covenants herein, then if a court of competent jurisdiction later finds that the challenged restrictive covenant is enforceable, the time periods set forth in the challenged restrictive covenant(s) shall be deemed tolled upon the filing of the claim or counterclaim in court seeking or challenging the enforceability of this Agreement until the dispute is finally resolved and all periods of appeal have expired; provided, however, that to the extent Employee complies with such restrictive covenant(s) during such challenge, the time periods set forth in the challenged restrictive covenant(s) shall not be deemed tolled.
11. Notification to Subsequent Employer. Employee agrees to notify any subsequent employer of the covenants and terms contained in this Agreement. In addition, the Employee authorizes the Company to provide a copy of this Agreement to third parties, including but not limited to, the Employee’s subsequent, anticipated or possible future employers.
12.Survivability. This Agreement shall remain binding in the event of Employee’s termination of employment with the Company for any reason.
13.Extension. Employee further acknowledges that if Employee is found to have violated any restriction in Paragraphs 4 or 5 above, that the time period for such restriction will be
extended by one day for each day of Employee’s failure either to comply with said restriction or to take prompt corrective action to make the Company whole for any breach, up to a maximum extension equal to the original Restricted Period. In the event of such a breach, the Company shall be entitled to the entry of an injunction enforcing the covenant for such an extended period. The Company also shall be entitled to a preliminary injunction, enforcing the covenant for up to such an extended period, if trial on the merits in any pending enforcement litigation has not yet occurred or concluded, if the covenant otherwise will lapse from expiration of the period originally prescribed for its operation, and if the Company satisfies the requirements warranting preliminary relief, except that the threat of irreparable injury will be presumed from the impending lapse of the covenant.
14.Assignment. Although Employee shall not have the right to assign this Agreement, it is nevertheless binding on his or her heirs and executors, and on the Company’s successors and assigns.
15.Governing Law and Consent to Jurisdiction. The formation, construction and interpretation of this Agreement, including but not limited to its enforceability, shall at all times and in all respects be governed by the laws of the State of Maryland, without reference to its conflict-of-law rules. The Company has the right to enforce this Agreement or pursue claims relating to it in any forum having jurisdiction. Any legal action that Employee initiates against the Company that relates in any way to this Agreement, including, without limitation, for a declaratory judgment, will be brought exclusively in the state courts of Maryland. If the Company elects to sue in Maryland for any claim relating in any way to this Agreement, Employee agrees to waive any defense of lack of personal jurisdiction or improper venue. Employee also agrees that the existence of any asserted claim or cause of action he or she has or believes he or she has against the Company, or asserted breach of duty by the Company, whether
or not based on this Agreement, shall not constitute a defense to the enforcement by the Company of the restrictive covenants above.
16.Severable Provisions. The provisions of this Agreement are severable, including each of the obligations in Paragraphs 4 and 5. In the event that the provisions of this Agreement should ever be deemed to exceed the limitations permitted by applicable laws, Employee and the Company agree that such provisions shall be reformed to the maximum limitations permitted by the applicable laws. Further, any invalidity or unenforceability shall affect only the provision or provisions deemed unenforceable, and shall not make any other provision in this Agreement invalid or unenforceable.
17.Entire Agreement. This Agreement constitutes the entire agreement between the Parties with respect to the specific covenants and obligations herein and supersedes any and all negotiations, discussions and prior understandings concerning the creation or operation of those specific covenants and obligations, with the exception of the Merger Noncompetition Agreement and Employee’s Employment Agreement dated as of December [ ], 2013. For the avoidance of doubt, any written agreements between the Employee and the Company entered into in connection with the acquisition of MMF by the Company shall not be superseded by this Agreement. No provision of this Agreement may be changed except by written agreement signed by both Employee and an officer of the Company.
18. Compliance with Section 409A of the Code. This Agreement is intended to comply with Section 409 of the Internal Revenue Code of 1986, as amended (“Section 409A”), or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the
maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of employment shall only be made upon a “separation from service” under Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by Employee on account of non-compliance with Section 409A.
19.WAIVER OF JURY TRIAL. THE PARTIES WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, COUNTERCLAIM, OR CROSSCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT.
IN WITNESS WHEREOF, the Parties have executed the Agreement as of the date first above written.
UNDER ARMOUR, INC. | ||||
By: | /s/ Brad Dickerson | |||
Name: | Brad Dickerson | |||
Title: | Chief Financial Officer | |||
WITNESS: | EMPLOYEE | |||
/s/ Caroline Wiggs | ||||
/s/ Robin Thurston | ||||
Caroline Wiggs | (signature) | |||
Print Name: | Robin Thurston | |||
Exhibit 21.01
Subsidiaries | Incorporation | |
Under Armour Europe B.V. | The Netherlands | |
Under Armour Retail, Inc. | Maryland | |
Global Sourcing Ltd. | Hong Kong | |
UA International Holdings C.V. | The Netherlands | |
MyFitnessPal, Inc. | Delaware | |
Subsidiaries not included in the list are omitted because, considered in the aggregate as a single subsidiary, they do not constitute a significant subsidiary.
Exhibit 23.01
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-130567, 333-129932 and 333-172423) of Under Armour, Inc. of our report dated February 19, 2016 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
February 19, 2016
Exhibit 31.01
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kevin A. Plank, certify that:
1. I have reviewed this annual report on Form 10-K of Under Armour, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 19, 2016
/s/ KEVIN A. PLANK | |
Kevin A. Plank | |
Chairman of the Board of Directors and Chief Executive Officer | |
Exhibit 31.02
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Lawrence P. Molloy, certify that:
1. I have reviewed this annual report on Form 10-K of Under Armour, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 19, 2016
/s/ LAWRENCE P. MOLLOY | |
Lawrence P. Molloy | |
Chief Financial Officer | |
Exhibit 32.01
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Under Armour, Inc. (the “Company”) hereby certifies, to such officer's knowledge, that:
(i) the annual report on Form 10-K of the Company for the period ended December 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 19, 2016
/s/ KEVIN A. PLANK | |
Kevin A. Plank | |
Chairman of the Board of Directors and Chief Executive Officer | |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Under Armour, Inc. and will be retained by Under Armour, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.02
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Under Armour, Inc. (the “Company”) hereby certifies, to such officer's knowledge, that:
(i) the annual report on Form 10-K of the Company for the period ended December 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 19, 2016
/s/ LAWRENCE P. MOLLOY | |
Lawrence P. Molloy | |
Chief Financial Officer | |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Under Armour, Inc. and will be retained by Under Armour, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.