UNDER ARMOUR, INC.
FORM 10-K
(Annual Report)
Filed 02/20/09 for the Period Ending 12/31/08
Address
1020 HULL STREET
3RD FLOOR
BALTIMORE, MD 21230
Telephone
410-454-6428
CIK
0001336917
Symbol
UA
SIC Code
2300 – Apparel & Other Finishd Prods of Fabrics & Similar Matl
Industry
Apparel/Accessories
Sector
Consumer Cyclical
Fiscal Year
12/31
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Table of Contents
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
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(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
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
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UNDER ARMOUR, INC.
(Exact name of registrant as specified in its charter)
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Maryland
52-1990078
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
1020 Hull Street
Baltimore, Maryland 21230
(410) 454-6428
(Address of principal executive offices) (Zip Code)
(Registrants 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 _
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 _
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes _
No _
Indicate by check mark 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 registrants 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._
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 accele rated filer, accelerated filer, and smaller rep orting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer _ Accelerated filer _ Non-accelerated filer _ 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 _
As of June 30, 2008, the last business day of our most recently completed second fiscal quarter, the aggregate market value of the registrants Class A Common Stock held by non-affiliates was approximately $842,982,849.
Class A Common Stock, $.0003 1/3 par value, 36,827,553 shares outstanding as of January 31, 2009 and Class B Convertible Common Stock, $.0003 1/3 par value, 12,500,000 shares outstanding as of January 31, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Under Armour, Inc.s Proxy Statement for the Annual Meeting of Stockholders to be held on May 5, 2009 are incorporated by reference in Part III of this Form 10-K.
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UNDER ARMOUR, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I.
Item 1.
Business
General
1
Products
1
Marketing and Promotion
2
Customers
4
Product Licensing
5
International Revenues
5
Seasonality
6
Product Design and Development
6
Sourcing, Manufacturing and Quality Assurance
7
Distribution and Inventory Management
7
Intellectual Property
8
Competition
8
Employees
9
Available Information
9
Item 1A.
Risk Factors
10
Item 1B.
Unresolved Staff Comments
20
Item 2.
Properties
20
Item 3.
Legal Proceedings
21
Item 4.
Submission of Matters to a Vote of Security Holders
21
Executive Officers of the Registrant
21
PART II.
Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
24
Item 6.
Selected Financial Data
27
Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
28
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
46
Item 8.
Financial Statements and Supplementary Data
47
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
75
Item 9A.
Controls and Procedures
75
Item 9B.
Other Information
75
PART III.
Item 10.
Directors, Executive Officers and Corporate Governance
76
Item 11.
Executive Compensation
76
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
76
Item 13.
Certain Relationships and Related Transactions, and Director Independence
76
Item 14.
Principal Accountant Fees and Services
76
PART IV.
Item 15.
Exhibits and Financial Statement Schedules
77
SIGNATURES
80
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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 brands moisture-wicking synthetic fabrications are engineered in many designs and styles for wear in nearly every climate to provide a performance alternative to traditional natural fiber 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 consumers with active lifestyles.
Our revenues are generated primarily from wholesale distribution of our products to national, regional, independent and specialty retailers. We also derive revenue from product licensing and from the sale of our products through our direct to consumer sales channel including our retail outlet and specialty stores, website and catalogs. Our products are offered in over 17,000 retail stores worldwide. 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, we sell our products primarily in the United Kingdom, France and Germany, a third party licensee sells our products in Japan, and distributors sell our products in other foreign countries. We plan to continue to grow our business over the long term through our United States wholesale apparel distribution primarily through sales of mens and womens apparel products, the opportunities available in the athletic footwear market, the expansion of our presence in overseas markets and a stronger direct to consumer sales channel. Virtually all of our products are manufactured by unaffiliated manufacturers operating in primarily 12 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 subsi diaries unless the context indicates otherwise. We have registered trademarks around the globe, including UNDER ARMOUR® , HEATGEAR® , COLDGEAR® , ALLSEASONGEAR® , LOOSEGEAR® 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 other companies. 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 all consumers with what we believe to be a superior alternative to cotton and other traditional products. In 2008, sales of apparel, footwear and accessories represented approximately 80%, 12%, and 4% of net revenues, respectively. Licensing arrangements for the sale of apparel and accessories represented 4% of net revenues. See 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 reduce friction, enhance comfort and mobility, regulate body temperature and improve performance regardless of weather conditions. Our apparel products are engineered to replace cotton and other traditional non-performance fabrics in the world of athletics and fitness with performance alternatives designed and merchandised along gearlines. Our three primary apparel 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 fit types: compression (tight fitting), fitted (athletic cut) and loose (relaxed).
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HEATGEAR® is designed to be worn in warm to hot temperatures under equipment or as a single layer. Our first compression T-shirt was the original HEATGEAR® product and remains one of our signature styles. While a sweat-soaked cotton 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.
Because athletes sweat in cold weather as well as in the heat, COLDGEAR® is designed to wick moisture from the body while circulating body heat from hotspots to help maintain core body temperature. Our COLDGEAR® apparel provides both dryness and warmth in a single light layer that can be worn beneath a jersey, uniform, protective gear or ski-vest and our COLDGEAR® outerwear products protect the athlete (and the coach, fan and others) from the outside in. Our COLDGEAR® product offerings generally sell at higher prices than our other gearlines.
ALLSEASONGEAR® is designed to be worn in changing temperatures and uses technical fabrics to keep the wearer cool and dry in warmer temperatures while preventing a chill in cooler temperatures.
Footwear
We began offering footwear in 2006, and each year we have expanded our footwear offerings. In 2006, we entered the footwear category with the introduction of football cleats. In 2007, we introduced baseball, lacrosse and softball cleats and slides. In the first quarter of 2008, we started shipping our performance training footwear for the product launch in the second quarter 2008. All of our footwear is engineered with our HEATGEAR® and is light, breathable and built to perform for the athlete. Our performance training footwear is designed with innovative technologies which provide stabilization, shock absorption, directional cushioning and moisture management engineered to maximize the athletes comfort and control. Consistent with our performance apparel marketing and pricing strategy, we offer our footwear at multiple price levels enabling us to reach a broader consumer base. New product offerings in 2009 include performance running footwear which was launched in January 2009 with the simple message that ATHLETES RUN. . In addition, we have developed a line of soccer cleats that we plan to seed on teams and players beginning in 2009.
Accessories
Our baseball batting, football, golf and running gloves are offered within our HEATGEAR® and COLDGEAR® lines and are designed with advanced fabrications to provide the same level of performance as our other products. Net revenues generated from the sale of baseball batting, football, golf and running gloves are included in our accessories category.
We also have agreements with our licensees to develop Under Armour accessories. Our product, marketing and sales teams are actively involved in all steps of the design process in order to maintain brand standards and consistency. Our licensees offer bags, socks, headwear and eyewear designed to be used and worn before, during and after competition, and feature performance advantages and functionality similar to our other product offerings. License revenues generated from the sale of performance bags, socks, headwear and eyewear are included in our net revenues.
Marketing and Promotion
We currently focus on marketing and selling our products to consumers for use in athletics and outdoor activities. We maintain strict control over our brand image with an in-house marketing and promotions department that designs and produces all of our advertising campaigns. We seek to drive consumer demand for our products by building brand equity and awareness as a leading performance athletic brand.
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Sports Marketing
Our global marketing and promotion efforts begin with a strategy of selling our products to high-performing athletes and teams on the collegiate and professional levels. We continue to execute this strategy through professional and collegiate sponsorships, individual athlete agreements and by selling our products directly to team equipment managers and to individual athletes. As a result, our uniforms, gloves, socks, footwear and other athletic products are seen on the field, giving our products exposure to various consumer audiences, through 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. In 2008, we entered into an agreement to become the official outfitter of all athletic programs at the University of Maryland commencing in 2009. We are the official outfitter of numerous teams at Auburn University and the University of South Florida, as well as the football teams at the University of Hawaii, the University of South Carolina, Texas Tech University and the University of Utah. We supply uniforms, sideline apparel and fan gear for these teams. In addition, we sell our products domestically to professional football teams and Division I mens and womens collegiate athletic teams, including many Division I football programs. We also signed an agreement in 2006 to be an official supplier of footwear to the National Football League (N FL), a step we took to complete the circle of authenticity from the Friday night lights of high school to Saturday afternoon college game day to the marquee Sunday match-ups of the NFL. This agreement enables NFL players to wear Under Armour footwear on the field and enables Under Armour to reach fans at the highest level of competitive football.
We also have sponsorship agreements with individual athletes. While our roster of athletes has included established stars, like professional football stars Brandon Jacobs and Santana Moss, triathlon champion Chris Macca McCormac k, professional baseball player Alfonso Soriano and soccer star Heather Mitts, our strategy has been and continues to be to find the next generation of stars, like US Olympic Volleyball player Nicole Branagh, Chicago Bears prolific return man and wide receiver Devin Hester, potential National Basketball Association lottery pick Brandon Jennings, Professional Golfers Association Tour Professional and 2008 Ryder Cup hero Hunter Mahan, a national womens figure skating champion Kimmie Meissner and pitcher for the Chicago Cubs Jeff Samardzija. Internationally, we are selling our products to European soccer and rugby teams. We are the official supplier of performance apparel to the Hannover 96 football team and the Welsh Rugby Union, among others. In addition, we are an official supplier of performance apparel to Hockey Canada and have advertising rights throughout the Air Canada Center during the Toronto Maple Leafs home games. We have also been designated as the Official Performance Product Sponsor of the Toronto Maple Leafs. We believe these relationships create significant on-field product and brand exposure that contributes to our on-field authenticity.
We seek to sponsor events to drive awareness and brand authenticity from a grassroots level. For example, we are a sponsor of the ESPY Awards Show each July and have used the national platform to launch our fall commercial campaigns. In keeping with our next great athlete strategy, we also sponsor events such as the College Football All Star Challenge, which is broadcast nationally within Super Bowl programming and features the countrys top players headed for the NFL. We are the title sponsor of the Under Armour Senior Bowl, which is an annual competition between the top seniors in college football, the Under Armour All-America Game, which is an annual competition between the top seniors in high school football, and the Under Armour Football Combines, a 15 city tour inviting the top high school underclassmen in each city to participate at NFL locations. In addition, we are the presenting sponsor for the 2009 NFL Scouting Combine. We partner with the Baseball Factory to outfit the nations top high school baseball athletes from head-to-toe and serve as the title sponsor for nationally-recognized baseball tournaments and teams. In addition, we are the title sponsor of The Under Armour (Baltimore) Marathon, we make a significant brand appearance at numerous other major races, and we are the title sponsor of The Under Armour All-America Lacrosse Classic. We participate on the mountain at the ES PN Winter X Games where winter sport athletes, including skiers, snowboarders, and snowmobilers, gather for events.
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