Under Armour 2007 Annual Report Download - page 64

and Exchange Commission (“SEC”) on August 26, 2005. Stock-based compensation awards granted to
employees and directors prior to the Company’s initial filing of the S-1 Registration Statement are specifically
excluded from SFAS 123R and will continue to be accounted for in accordance with APB 25 and FIN 28 until
unearned compensation of $0.2 million as of December 31, 2007 is fully amortized through 2010.
In addition, as of the January 1, 2006 adoption date, the Company reversed $0.7 million in unearned
compensation and the related additional paid-in capital due to unvested equity awards granted between the initial
filing of the Company’s S-1 Registration Statement and the January 1, 2006 SFAS 123R adoption date. For the
years ended December 31, 2007, 2006 and 2005, the Company recognized $0.3 million, $0.4 million and $0.9
million, respectively, in amortization of unearned compensation in accordance with APB 25 and FIN 28.
The Company uses the Black-Scholes option-pricing model to estimate the fair market value of stock-based
compensation awards granted under SFAS 123R. As permitted by SAB No. 107, Share-Based Payment (“SAB
107”), the expected life of stock options granted is calculated using an expected life equal to the time from grant
to the midpoint between the vesting date and the contractual term, while considering the 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 stock
option life. Expected volatility is based on an average for a peer group of companies similar in terms of type of
business, industry, stage of life cycle and size. Compensation expense is recognized on a straight-line basis over
the total vesting period, which is the implied requisite service period and net of forfeitures which are estimated at
the date of grant based on historical rates. The Company recognized $3.9 million and $1.5 million in stock-based
compensation expense in selling, general and administrative expenses for the year ended December 31, 2007 and
2006 in accordance with SFAS 123R.
Total stock-based compensation expense for the years ended December 31, 2007, 2006 and 2005 was $4.2
million, $2.0 million and $1.2 million, respectively. As of December 31, 2007, the Company had $16.2 million of
unrecognized compensation expense expected to be recognized over a weighted average period of 4.0 years.
Had the Company elected to account for all stock-based compensation awards granted to employees and
directors at fair value in accordance with SFAS 123 as amended by SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure (“SFAS 148”), net income and earnings per share for the years ended
December 31, 2007, 2006 and 2005 would have been reported as set forth in the following table:
Year Ended December 31,
(In thousands, except per share amounts) 2007 2006 2005
Net income, as reported .............................................. $52,558 $38,979 $19,719
Accretion of and cumulative preferred dividends on Series A Preferred Stock . . . — — 5,307
Net income available to common stockholders ............................ 52,558 38,979 14,412
Add: stock-based compensation expense included in reported net income, net of
taxes ........................................................... 2,468 1,298 512
Deduct: stock-based compensation expense determined under fair value based
methods for all awards, net of taxes ................................... (2,628) (1,452) (266)
Pro forma net income ................................................ $52,398 $38,825 $14,658
Earnings per share including SFAS 123 compensation expense
Basic, pro forma ................................................ $ 1.09 $ 0.83 $ 0.39
Diluted, pro forma .............................................. $ 1.05 $ 0.78 $ 0.37
Basic, as reported ............................................... $ 1.09 $ 0.83 $ 0.39
Diluted, as reported ............................................. $ 1.05 $ 0.79 $ 0.36
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