Part I Forward Looking Statements This section outlines forward-looking statements concerning future events, results, and strategies, cautioning readers that these statements are subject to numerous risks and uncertainties, and the company disclaims any obligation to update them - Forward-looking statements cover future financial conditions, growth strategies, the impact of COVID-19, restructuring plans, and new product introductions9 - Key risk factors that could cause actual results to differ materially include the COVID-19 pandemic, economic changes, competition, raw material costs, supply chain disruptions, and data security breaches9 - The company clarifies that it does not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances11 Business Under Armour's primary business is the development, marketing, and distribution of branded performance apparel, footwear, and accessories globally through wholesale and direct-to-consumer channels, with a long-term growth strategy focused on product innovation, DTC expansion, and international growth - The company's principal activities are developing, marketing, and distributing branded performance apparel, footwear, and accessories for men, women, and youth13 - Products are sold worldwide through wholesale distributors and a direct-to-consumer channel, which includes brand/factory stores and e-commerce websites14 - Long-term growth strategy is based on increasing sales of core products, expanding wholesale distribution, growing the DTC channel, and expanding in international markets14 Products The company's product offerings include apparel, footwear, and accessories, which constituted 64%, 21%, and 9% of net revenues in Fiscal 2020 respectively, with its Connected Fitness segment now focusing on the MapMyFitness platform after divesting MyFitnessPal Fiscal 2020 Net Revenue by Product | Product Category | Percentage of Net Revenues (%) | |---------------------|----------------------------| | Apparel | 64 | | Footwear | 21 | | Accessories | 9 | | Licensing & Connected Fitness | 6 | - In December 2020, the company sold its MyFitnessPal platform and discontinued the Endomondo platform, significantly altering its Connected Fitness segment1519 - Key product technologies include HEATGEAR®, COLDGEAR®, RUSH™, and RECOVER™ for apparel, and UA HOVR™, UA Micro G®, and Charged Cushioning® for footwear1617 Sales and Distribution In Fiscal 2020, sales were primarily through wholesale channels (53%) and direct-to-consumer (41%), with North America accounting for 66% of net revenues, as the company plans continued international expansion and DTC growth Fiscal 2020 Net Revenue by Channel & Segment | Channel/Segment | Percentage of Net Revenues (%) | |-------------------|----------------------------| | By Channel | | | Wholesale | 53 | | Direct-to-Consumer| 41 | | Licensing | 2 | | Connected Fitness | 3 | | By Segment | | | North America | 66 | | International | 31 | - As of December 31, 2020, the company operated 176 factory house stores and 18 brand house stores in North America25 - The company is changing its business model in Chile from direct sales to a distributor model, with the sale expected to close in early Fiscal 202128 Sourcing, Manufacturing and Quality Assurance The company relies on unaffiliated manufacturers for substantially all products, with apparel and accessories primarily produced in Vietnam, Jordan, Malaysia, and China, and footwear mainly in Vietnam, Indonesia, and China, sourcing fabric from a limited number of pre-approved suppliers - Substantially all products are made by unaffiliated manufacturers. In Fiscal 2020, 10 primary manufacturers produced approximately 57% of apparel and accessories, while 6 produced substantially all footwear31 - Approximately 68% of apparel and accessories were manufactured in Vietnam, Jordan, Malaysia, and China31 - The company sources fabric from a limited number of pre-approved suppliers, with about 39% of fabric coming from just 5 suppliers in Fiscal 202031 Human Capital Management As of December 31, 2020, Under Armour had approximately 16,600 teammates worldwide, focusing on diversity, equity, and inclusion goals, competitive total rewards, talent development, and teammate health and safety, particularly in response to the COVID-19 pandemic - As of Dec 31, 2020, the company had ~16,600 teammates, with ~12,000 in retail stores and ~1,300 in distribution37 U.S. Teammate Diversity (as of Dec 31, 2020) | Category | White (%) | Hispanic/Latino (%) | Black/African American (%) | Asian (%) | Other (%) | |---|---|---|---|---|---| | Total U.S. Population | 51 | 21 | 17 | 6 | 5 | | Director Level & Above | 78 | 7 | 7 | 6 | 2 | - Globally, 53% of teammates were women, and women held 37% of director-level and above positions38 - In response to COVID-19, the company implemented enhanced health and safety measures, a new sick leave policy, and shifted most corporate teammates to remote work41 Risk Factors This section details significant risks that could adversely affect the company's business, including the ongoing impact of the COVID-19 pandemic, intense competition, supply chain disruptions, dependence on large wholesale customers, challenges in executing strategies, financial risks from debt covenants, and legal/regulatory risks including SEC and DOJ investigations Economic and Industry Risks The company faces significant risks from the COVID-19 pandemic, which has disrupted its industry and consumer spending, intense competition from larger rivals, pricing pressures, and fluctuations in raw material costs - The COVID-19 pandemic has materially impacted business through store closures, reduced consumer spending, and supply chain disruptions, with ongoing uncertainty5556 - The market for performance apparel is highly competitive, with large, well-resourced competitors and private label offerings creating significant pressure6061 - Profitability may decline due to pricing pressure from intense competition and retailers, potentially forcing price reductions or increased promotional activity6364 Business and Operational Risks A substantial portion of sales comes from large wholesale customers, whose financial decline could adversely impact results, while the company faces risks in executing its long-term strategies, managing inventory, maintaining brand image, and relying on a limited number of third-party suppliers - The company derives a substantial portion of sales from large wholesale customers (53% of net revenues in 2020), and their financial health is a key risk6970 - Since 2017, the company has executed three restructuring plans to improve profitability, but may not fully realize the expected benefits75 - The company relies on a limited number of third-party manufacturers, with 10 manufacturers producing ~57% of apparel/accessories and 6 producing substantially all footwear in Fiscal 202088 - The implementation of a new global operating and financial information system (SAP FMS) carries risks of disruption and increased costs103104 Legal, Regulatory and Compliance Risks The company is subject to extensive trade and product regulations globally, faces risks from data security breaches and complex privacy laws, and is involved in ongoing legal proceedings, including a securities class action lawsuit and SEC/DOJ investigations regarding past accounting practices - The company is subject to ongoing legal proceedings, including a securities class action lawsuit regarding prior disclosures and past related party transactions129 - In July 2020, the company and two senior executives received 'Wells Notices' from the SEC related to disclosures from Q3 2015 to year-end 2016 regarding the use of 'pull forward' sales129 - The company must comply with complex and evolving data privacy regulations such as the EU's GDPR and California's CCPA, with non-compliance posing financial and reputational risks122 Risks Related to our Common Stock Executive Chairman and Brand Chief, Kevin A. Plank, controls the majority of the voting power of the company's common stock through his ownership of all Class B shares, potentially delaying or preventing a change of control, while trading prices of Class A and Class C common stock may differ and fluctuate - Executive Chairman Kevin Plank controls the majority of voting power through his ownership of all Class B common stock, which has 10 votes per share132 - This concentration of voting control may delay or prevent a change of control and allows Mr. Plank to direct matters submitted to a stockholder vote132 Properties The company's principal executive offices are in a mostly owned complex in Baltimore, Maryland, with primary leased distribution facilities totaling approximately 3.5 million square feet in Maryland, Tennessee, and California, and 439 leased brand and factory house stores globally as of year-end 2020 - Principal executive offices are located in Baltimore, Maryland135 - The company leases its primary distribution facilities in Sparrows Point, MD, Mount Juliet, TN, and Rialto, CA, totaling approximately 3.5 million square feet135 - As of year-end 2020, the company leased 439 brand and factory house stores located primarily in the U.S., China, Mexico, Korea, Chile, and Canada135 Legal Proceedings The company is involved in various litigation and other proceedings, with specific details incorporated by reference from Note 10 to the Consolidated Financial Statements - The company is involved in litigation related to commercial disputes, intellectual property, and other business-related claims. Specific details are provided in Note 10 of the financial statements136 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Under Armour's Class A (UAA) and Class C (UA) Common Stock are traded on the NYSE, with no cash dividends paid in Fiscal 2020 or 2019, and the company's stock performance significantly underperformed the S&P 500 over the five-year period ending December 31, 2020 - Class A (UAA) and Class C (UA) Common Stock are traded on the New York Stock Exchange138 - No cash dividends were paid in Fiscal 2020 or 2019, and the company does not anticipate paying dividends in the foreseeable future139 Stock Performance Comparison (Cumulative Total Return) | Company/Index | 12/31/2015 (USD) | 12/31/2020 (USD) | |---|---|---| | Under Armour, Inc. | $100.00 | $41.23 | | S&P 500 | $100.00 | $203.04 | | S&P 500 Apparel, Accessories & Luxury Goods | $100.00 | $99.45 | Selected Financial Data This section presents a five-year summary of key financial data, showing Fiscal 2020 net revenues of $4.47 billion and a net loss of $549.2 million, a significant decline from Fiscal 2019, while total assets increased to $5.03 billion and total stockholders' equity decreased to $1.68 billion Selected Financial Data (2019 vs. 2020) | (In thousands USD) | 2020 | 2019 | |---|---|---| | Income Statement | | | | Net revenues | $4,474,667 | $5,267,132 | | Gross profit | $2,160,095 | $2,470,533 | | Income (loss) from operations | ($613,438) | $236,770 | | Net income (loss) | ($549,177) | $92,139 | | Diluted net income (loss) per share | ($1.21) | $0.20 | | Balance Sheet (at year-end) | | | | Total assets | $5,030,628 | $4,843,531 | | Total debt | $1,003,556 | $592,687 | | Total stockholders' equity | $1,675,993 | $2,150,087 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The MD&A provides management's perspective on the company's financial performance and condition, highlighting the significant impact of the COVID-19 pandemic on Fiscal 2020, leading to a 15% revenue decrease and a net loss, alongside details on restructuring plans, segment performance, and liquidity management COVID-19 Impact The COVID-19 pandemic materially impacted Fiscal 2020 operations, causing widespread temporary store closures but substantial growth in global e-commerce, prompting the company to take proactive liquidity preservation measures, with ongoing uncertainty for 2021 - The pandemic led to the closure of substantially all brand and factory house stores starting in Q1 2020, with most reopening by Q3, though some re-closed in Q4 based on regional conditions152 - While store closures impacted sales, the company experienced significant growth in its global e-commerce business. In Fiscal 2020, e-commerce represented approximately 47% of the total direct-to-consumer business154 - Actions to preserve liquidity included amending the credit agreement, selling $500 million of 1.50% Convertible Senior Notes, reducing discretionary spending, and negotiating payment terms with vendors155 2020 Restructuring Plan In 2020, the Board approved a restructuring plan estimated to cost between $550 million and $600 million, designed to rebalance the cost base and improve profitability, including significant cash and non-cash charges, notably a $291 million impairment of the New York City flagship store lease - The 2020 restructuring plan is estimated to total $550 million to $600 million in pre-tax charges157 2020 Restructuring Plan Charge Breakdown (Estimated) | Charge Type | Estimated Amount (up to, in millions USD) | |---|---| | Cash Charges | $219 | | - Facility & lease terminations | $61 | | - Employee severance & benefits | $30 | | - Contract termination & other | $128 | | Non-Cash Charges | $381 | | - NYC flagship store impairment | $291 | | - Intangibles & other asset impairments | $90 | - A strategic decision was made to forgo the opening of the New York City flagship store, resulting in a ROU asset impairment of $290.8 million in Q1 2020159280 Results of Operations For Fiscal 2020, net revenues decreased 15% to $4.47 billion from $5.27 billion in 2019, driven by COVID-19 impacts, resulting in an operating loss of $613.4 million despite an improved gross margin of 48.3%, due to substantial restructuring and impairment charges Consolidated Operations (Fiscal 2020 vs. 2019) | (In millions USD) | 2020 | 2019 | % Change | |---|---|---|---| | Net Revenues | $4,474.7 | $5,267.1 | (15.0)% | | Gross Profit | $2,160.1 | $2,470.5 | (12.6)% | | Gross Margin | 48.3% | 46.9% | +140 bps | | SG&A Expenses | $2,171.9 | $2,233.8 | (2.8)% | | Restructuring & Impairment | $601.6 | $0 | N/A | | Income (Loss) from Operations | ($613.4) | $236.8 | (359.1)% | | Net Income (Loss) | ($549.2) | $92.1 | N/A | Net Revenues by Product (Fiscal 2020 vs. 2019) | (In millions USD) | 2020 | 2019 | % Change | |---|---|---|---| | Apparel | $2,882.6 | $3,470.3 | (16.9)% | | Footwear | $934.3 | $1,086.6 | (14.0)% | | Accessories | $414.1 | $416.4 | (0.5)% | Segment Results of Operations In Fiscal 2020, all geographic segments experienced revenue declines due to COVID-19, with North America's operating income dropping 35.3% and Latin America recording a significant operating loss, while EMEA was the only segment to show an increase in operating income Net Revenues by Segment (Fiscal 2020 vs. 2019) | (In millions USD) | 2020 | 2019 | % Change | |---|---|---|---| | North America | $2,945.0 | $3,658.4 | (19.5)% | | EMEA | $598.3 | $621.1 | (3.7)% | | Asia-Pacific | $628.7 | $636.3 | (1.2)% | | Latin America | $164.8 | $196.1 | (16.0)% | Operating Income (Loss) by Segment (Fiscal 2020 vs. 2019) | (In millions USD) | 2020 | 2019 | |---|---|---| | North America | $474.6 | $733.4 | | EMEA | $60.6 | $53.7 | | Asia-Pacific | $0.0 | $97.6 | | Latin America | ($42.8) | ($3.2) | | Connected Fitness | $17.1 | $17.1 | | Corporate Other | ($1,122.9) | ($662.0) | Financial Position, Capital Resources and Liquidity The company ended Fiscal 2020 with $1.5 billion in cash and cash equivalents, a significant increase from 2019, achieved through proactive liquidity management including issuing $500 million in convertible senior notes and amending its credit facility, believing current liquidity is sufficient for the next twelve months Cash Flow Summary (Fiscal 2020 vs. 2019) | (In millions USD) | 2020 | 2019 | |---|---|---| | Net cash from operating activities | $212.9 | $509.0 | | Net cash from (used in) investing activities | $66.3 | ($147.1) | | Net cash from (used in) financing activities | $436.9 | ($137.1) | - In May 2020, the company issued $500 million of 1.50% convertible senior notes due 2024 to bolster liquidity and repay amounts on its revolving credit facility183184 - The company amended its credit agreement in May 2020 to provide temporary relief from certain financial covenants and ensure access to its $1.1 billion revolving credit facility183 - As of December 31, 2020, cash and cash equivalents totaled $1.5 billion, up from $788 million at the end of 2019179 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to global market risks, primarily from foreign currency exchange rates and interest rates, using derivative instruments to manage these exposures, and faces credit risk on accounts receivable, but believes its allowance for doubtful accounts is sufficient - The company uses derivative instruments, including foreign currency forward contracts, to manage financial exposures from foreign currency and interest rate risks209 - As of December 31, 2020, the aggregate notional value of outstanding cash flow hedges was $812.5 million, with maturities ranging from one to twenty-four months367 - The company is exposed to credit risk on accounts receivable but mitigates this through ongoing credit evaluations and believes its allowance for doubtful accounts is sufficient211 Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2020, and the unqualified report from PricewaterhouseCoopers LLP, including critical audit matters related to asset impairment and customer return reserves - PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2020217 - Critical Audit Matters identified were the impairment analyses for long-lived right-of-use assets and the reserve for customer returns, due to the significant management judgment involved225227229 Consolidated Balance Sheet Summary (As of Dec 31) | (In thousands USD) | 2020 | 2019 | |---|---|---| | Total current assets | $3,222,975 | $2,702,209 | | Total assets | $5,030,628 | $4,843,531 | | Total current liabilities | $1,413,276 | $1,422,009 | | Total liabilities | $3,354,635 | $2,693,444 | | Total stockholders' equity | $1,675,993 | $2,150,087 | Consolidated Statement of Operations Summary | (In thousands USD) | 2020 | 2019 | 2018 | |---|---|---|---| | Net revenues | $4,474,667 | $5,267,132 | $5,193,185 | | Gross profit | $2,160,095 | $2,470,533 | $2,340,471 | | Income (loss) from operations | ($613,438) | $236,770 | ($25,017) | | Net income (loss) | ($549,177) | $92,139 | ($46,302) | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020, following the final phase of its global SAP FMS implementation in Mexico, with no material changes to internal control over financial reporting despite the shift to remote work due to COVID-19 - Management concluded that disclosure controls and procedures were effective as of December 31, 2020386 - The third and final phase of the global SAP FMS implementation became operational in Mexico in April 2020387 - No material changes to internal control over financial reporting occurred during the most recent fiscal quarter, despite the shift to remote work due to COVID-19387 Part III Directors, Executive Officers and Corporate Governance This section incorporates by reference information from the company's 2021 Proxy Statement regarding its directors, executive officers, and corporate governance matters, confirming the availability of a written code of ethics on its website - Information regarding directors and corporate governance is incorporated by reference from the 2021 Proxy Statement390 - The company has a written code of ethics and business conduct, which is available on its corporate website391 Executive Compensation Information concerning the compensation of directors and executives is incorporated by reference from the company's 2021 Proxy Statement - Details on executive and director compensation are incorporated by reference from the 2021 Proxy Statement392 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding the security ownership of management and certain beneficial owners is incorporated by reference from the company's 2021 Proxy Statement, with additional details on equity compensation plans found in Item 5 of this report - Information on security ownership by management and certain beneficial owners is incorporated by reference from the 2021 Proxy Statement393 Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and the independence of directors is incorporated by reference from the company's 2021 Proxy Statement - Details on related party transactions and director independence are incorporated by reference from the 2021 Proxy Statement394 Principal Accountant Fees and Services Information regarding the fees paid to and services provided by the principal accountant is incorporated by reference from the company's 2021 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement395 Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K, including key corporate documents, debt agreements, compensation plans, and Sarbanes-Oxley Act certifications by the CEO and CFO - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K397 - Key exhibits filed include the Amended and Restated Credit Agreement (10.01, 10.02), Indentures for Senior and Convertible Notes (4.02, 4.03, 4.04), and various executive and director compensation plans (10.04-10.21)398400 - Certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act are also filed as exhibits401
Under Armour(UA) - 2020 Q4 - Annual Report