Under Armour 2005 Annual Report Download

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under armour®
ANNUAL REPORT
20
05

Table of contents

  • Page 1
    20 05 under armour® A N N U A L R E P O R T

  • Page 2
    ... at the same time we assembled a sales force in our new European headquarters in Amsterdam, led by one of my original partners, Ryan Wood, and his well balanced team of Brand, industry and local experts. • We've been able to expand our high profile floor space in large sporting goods stores while...

  • Page 3

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  • Page 5
    ... Act. Large accelerated filer ' Accelerated Filer ' Non-accelerated Filer È As of June 30, 2005, the last business day of our most recently completed second fiscal quarter, our Class A Common Stock was not listed on any exchange or over-the-counter market. Our Class A Common Stock began trading on...

  • Page 6

  • Page 7
    ... the sporting goods, outdoor and active lifestyle markets. For 2005, sales of mens, womens and youth products represented 67%, 19% and 7% of net revenues, respectively, with the remaining 7% divided equally between licensing and accessories. Within each gearline our garments come in three fit types...

  • Page 8
    ... caps, knit caps, visors, socks and performance bags. We currently have agreements with two accessory licensees: Moretz Sports manufactures performance socks under the Under Armour brand, and JR286 manufactures Under Armour hats, bags and wristbands. Under Armour product, marketing and sales teams...

  • Page 9
    ... America and over 8,700 retail stores world wide, which we refer to as wholesale distribution. We also sell our products directly to athletes and teams through our sports marketing group, to consumers through our website and toll-free call center, and through our retail outlet stores. We rely on our...

  • Page 10
    ... website at our manufacturers suggested retail price. Direct sales also include sales through our retail outlet stores and sales by our sports marketing group for use by professional and college athletes. Product Licensing In addition to generating revenues through wholesale and direct distribution...

  • Page 11
    ... revenues. Prior to 2003, our products had been sold in Canada by independent sales representatives. Our Canadian subsidiary sells directly to teams and retail chains and also distributes products through manufacturers' representatives to independent sporting goods dealers. The Canadian market...

  • Page 12
    ... uniform quality for all products. We also manufacture a limited number of products on-premises in our quick turn, Special Make-Up Shop located at our distribution facility in Glen Burnie, Maryland. This 17,000 square-foot shop is stocked with our fabric in multiple colors to help us build and ship...

  • Page 13
    ... their production and marketing of performance products. The fabrics and technology used in manufacturing our products are generally not unique to us, and we do not currently own any fabric or process patents or copyrights. Many of our competitors are large apparel and sporting goods companies with...

  • Page 14
    ... President of Sports Marketing, Team Sales and Licensing since 2002. Prior to joining our Company, Mr. Kraus served as Director of Eastern Retail Sales for Champion Products from 1995 to 2002. Wayne A. Marino has been Executive Vice President and Chief Financial Officer of Under Armour since March...

  • Page 15
    ... since 2005. Prior to that time, Mr. Wood served as Vice President of Sales of Under Armour from 1999 to 2004. 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...

  • Page 16
    ... effectively market and maintain a positive brand image; the availability and effective operation of management information systems and other technology; our ability to attract and maintain the services of our senior management and key employees; and changes in general economic or market conditions...

  • Page 17
    .... In 2005, approximately 36% of our net revenues were generated from sales to our two largest customers, Dick's Sporting Goods and The Sports Authority. The percentage of our net revenues attributable to these customers has increased in recent years as these customers opened new store locations and...

  • Page 18
    ...key markets or a continued decline in consumer purchases of sporting goods generally could have an adverse effect on the financial health of our retail customers, which could in turn have an adverse effect on our sales, our ability to collect on receivables, our ability to borrow under our revolving...

  • Page 19
    ...cost of goods sold, results of operations and financial condition, and cause a decline in the price of our Class A Common Stock. 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...

  • Page 20
    ... or process patents or copyrights, our current and future competitors are able to manufacture and sell products with performance characteristics and fabrications similar to our products. Many of our competitors are large apparel and sporting goods companies with strong worldwide brand recognition...

  • Page 21
    ... our Class A Common Stock to fluctuate significantly. 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...

  • Page 22
    ..., teams or leagues could also harm our brand image and result in a material decrease in our net revenues and net income, which could have a material adverse effect on our financial condition and liquidity and the price of our Class A Common Stock. We rely significantly on information technology and...

  • Page 23
    ... greater financial, distribution, marketing and other resources than we do, they may be able to manufacture and sell products based on 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...

  • Page 24
    ... applicable. ITEM 2. PROPERTIES Our principal executive and administrative offices are located at 1020 Hull Street in Baltimore, Maryland. We expect that our current administrative offices are sufficient for our expansion plans over the next 24 months. We opened our central distribution facility in...

  • Page 25
    ... Date Location Use Baltimore, MD ...Amsterdam, The Netherlands ...Glen Burnie, MD ... Corporate headquarters European headquarters Distribution facility, 17,000 square foot quick-turn, Special Make-Up Shop manufacturing facility and 4,500 square foot retail outlet store Sales office Sales office...

  • Page 26
    ... MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Under Armour's Class A Common Stock has been traded on the NASDAQ National Market under the symbol "UARM" since November 18, 2005. Prior to that time there was no public market for our stock...

  • Page 27
    ...selling stockholders identified in the registration statement. All Class A Common Stock registered under the registration statement was sold at a price to the public of $13.00 per share. The offering closed on November 23, 2005. The managing underwriters were Goldman, Sachs & Co., CIBC World Markets...

  • Page 28
    ... of Financial Condition and Results of Operations" included elsewhere in this Form 10-K. (In thousands, except per share amounts) 2005 Year Ended December 31, 2004 2003 2002 2001 Statements of Income data: Net revenues ...Cost of goods sold ...Gross profit ...Selling, general and administrative...

  • Page 29
    ... "Risk Factors," "Selected Financial Data," and "Business." Overview We are a leading developer, marketer and distributor of branded performance products for men, women and youth. Since our founding in 1995, we have grown and reinforced our brand name and image through sales to athletes and teams at...

  • Page 30
    ... effectiveness and design of our internal controls are adequate. General Net revenues comprise both net sales and license revenues. Net sales comprise our four primary product categories, including mens, womens, youth and accessories. For further detail, see "Results of Operations." Cost of goods...

  • Page 31
    ... sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues. (In thousands) Year Ended December 31, 2005 2004 2003 Net revenues ...Cost of goods sold ...Gross profit ...Selling, general and administrative expenses ...Income...

  • Page 32
    ... retail customers, while pricing of existing products remained relatively unchanged; and new products introduced in 2005 accounted for $29.0 million of the increase in net sales which included the Metal series, Under Armour Tech-T line and our performance hooded sweatshirt for mens, womens and youth...

  • Page 33
    ... in support of our footwear initiative, freight and duty related to increased Canada sales, expansion of our leased corporate office space and distribution facility, and necessary costs associated with being a public company. As a percentage of net revenues, other corporate costs were 9.1% in 2005...

  • Page 34
    ... increased sales in Canada, while the pricing of our existing products remained relatively unchanged; and the introduction of new products, including men's compression and running shorts, a line of men's fleece, athletic gloves, a women's sports bra and women's seamless underwear. These new products...

  • Page 35
    ...from operations in the third and fourth quarters of the year, driven by increased sales volume of our products during the fall selling season, reflecting our historical strength in fall sports, and the seasonality of our higher priced ColdGear line. Approximately 62% and 66% of our net revenues were...

  • Page 36
    ... 9,500,000 shares of Class A Common Stock, which provided us with cash that we have placed in highly liquid investments with maturities of less than three months. In addition to the initial public offering, our financial position also improved due to better inventory management when compared to the...

  • Page 37
    ... two years were due to the expansion of our distribution center, the creation of the quick turn, Special Make-Up Shop, investing in our in-store fixture program, expansion of space related to our corporate headquarters, and the build-out of our first two retail outlet stores. In June 2004, we moved...

  • Page 38
    ...other things, to borrow money; pledge our accounts receivable, inventory, intellectual property and most of our other assets as security in our borrowings or transactions; pay dividends on stock; redeem or acquire any of our securities; sell certain assets; make certain investments; guaranty certain...

  • Page 39
    ... takes place at the point of sale (e.g. at the Company's retail outlet stores). Provisions for sales discounts earned and customer-based incentives are based on contractual obligations with customers. Returns are estimated at the time of sale based on historical experience. License revenues are...

  • Page 40
    ... effective tax rate for the year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual rate. Stock-Based Compensation We have not elected the provisions of Statement of Financial...

  • Page 41
    ...as this statement relates to the valuation of the share based payment arrangements for public companies. We will apply the principles of SAB 107 in connection with the adoption of SFAS 123R. We are currently evaluating the effect of SFAS 123R and SAB 107 on our consolidated financial statements with...

  • Page 42
    ... our financial position or results of operations to date, 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...

  • Page 43
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Under Armour, Inc. and subsidiaries: In our opinion, the consolidated financial statements listed in the index appearing under Item 15 (A) (1) ...

  • Page 44
    ... 31, 2005; $.001 par value; 1,208,055 shares authorized, issued and outstanding as of December 31, 2004...Additional paid-in capital ...Retained earnings ...Unearned compensation ...Notes receivable from stockholders ...Accumulated other comprehensive loss ...Total stockholders' equity ...Total...

  • Page 45
    ... Consolidated Statements of Income (in thousands, except per share amounts) Year Ended December 31, 2005 2004 2003 Net revenues ...Cost of goods sold ...Gross profit ...Operating expenses Selling, general and administrative expenses ...Income from operations ...Other expenses Interest expense, net...

  • Page 46
    ... Unearned Receivable Compre- CompreTotal Paid-In Retained Compenfrom hensive hensive Stockholders' Amou]nt Capital Earnings sation Stockholders Loss Income Equity Class A Common Stock Shares Amount Balance as of December 31, 2002 ...31,200.0 Issuance of Common Stock, net of issuance costs of...

  • Page 47
    ... Flows (in thousands) Year Ended December 31, 2005 2004 2003 Cash flows from operating activities Net income ...Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization ...Loss on disposal of fixed assets ...Stock compensation expense...

  • Page 48
    ... Notes to the Consolidated Financial Statements (amounts in thousands, except per share and share amounts) 1. Description of the Business Under Armour, Inc. and Subsidiaries (the "Company") is a developer, marketer and distributor of branded performance products for men, women and youth under the...

  • Page 49
    ...based upon assumptions about future demands, selling prices, and market conditions. 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...

  • Page 50
    ... obligations with customers. Returns are estimated at the time of sale based on historical experience. License revenues are recognized based upon shipment of licensed products sold by our licensees. Advertising Costs Advertising costs are charged to selling, general and administrative expenses as...

  • Page 51
    ... net revenues. The costs associated with shipping goods to customers from our distribution center are recorded in selling, general and administrative expenses. For the years ended December 31, 2005, 2004 and 2003, these shipping costs were $3,590, $1,667 and $1,533, respectively. Earnings per Share...

  • Page 52
    ... to the Consolidated Financial Statements-(Continued) (amounts in thousands, except per share and share amounts) Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services ("EITF 96-18"). For the year ended December 31...

  • Page 53
    ... date of 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...

  • Page 54
    ... to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 will be effective for fiscal years beginning after June 15, 2005. While the Company does not believe the adoption of this statement will have a material effect on the Company's consolidated financial...

  • Page 55
    ... software costs relative to systems not yet placed in use and in-store fixtures not yet placed in service. Depreciation and amortization expense related to property and equipment was $6,224, $3,165 and $1,024 for the years ended December 31, 2005, 2004 and 2003, respectively. 5. Revolving Credit...

  • Page 56
    ...other things, to borrow money; pledge our accounts receivable, inventory, intellectual property and most of our other assets as security in our borrowings or transactions; pay dividends on stock; redeem or acquire any of our securities; sell certain assets; make certain investments; guaranty certain...

  • Page 57
    ...years ended December 31, 2005, 2004 and 2003 the Company amortized and included in interest expense $57, $48 and $15, respectively, of deferred financing costs. 6. Obligations under Capital and Operating Leases The Company leases warehouse space, office facilities, space for our retail outlet stores...

  • Page 58
    ... Company is, from time to time, involved in routine legal matters incidental to its business. Management believes that the ultimate resolution of such proceedings will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Certain key executives...

  • Page 59
    ... of Class A Common Stock, with an effective date of May 3, 2005. All Class A Common Stock shares presented in the consolidated financial statements and the notes to the consolidated financial statements have been restated to properly reflect the May 3, 2005 stock split. Stockholders' Agreements-In...

  • Page 60
    ... the balance sheet as a component of stockholders' equity. These notes receivable are collateralized by the Class A Common Stock and are full recourse to the Company. The 2005 notes receivable accrue interest at 7.7% and have a five year term at which time both principal and interest are due. The...

  • Page 61
    ... Notes to the Consolidated Financial Statements-(Continued) (amounts in thousands, except per share and share amounts) 10. Provision for Income Taxes The components of the provision for income taxes consisted of the following: Year Ended December 31, 2005 2004 2003 Current Federal ...State ...Other...

  • Page 62
    ... dividend equivalent rights and performance and annual incentive awards. Generally, grants of these stock rights vest ratably over a two to five year period. The exercise period for all stock options generally may not exceed five years from the date of grant. The Company will generally receive a tax...

  • Page 63
    ... employees and directors of which 900 shares were forfeited by year end. Some shares were immediately vested and the remaining shares vest ratably from two to five years. Based on the fair market value of Class A Common Stock on the date of these grants, the Company recorded unearned compensation...

  • Page 64
    ...the date such amounts are credited to such employee's account. At December 31, 2005, no amounts are included on the balance sheet relating to this plan. 13. Related Party Transactions In 2005, the Company entered into an agreement to license a software system with a vendor whose CEO is a director of...

  • Page 65
    Under Armour, Inc. and Subsidiaries Notes to the Consolidated Financial Statements-(Continued) (amounts in thousands, except per share and share amounts) which the Company develops, markets, and distributes apparel and accessories. Based on the nature of the financial information that is received by...

  • Page 66
    ... AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item regarding directors is incorporated herein by reference from the 2006 Proxy Statement, under the headings "NOMINEES FOR ELECTION AT THE ANNUAL MEETING," "CERTAIN RELATIONS AND RELATED TRANSACTIONS," "CORPORATE GOVERNANCE...

  • Page 67
    ...Form 10-K: 1. Financial Statements: Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2005 and 2004 ...Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003 ...Consolidated Statements of Stockholders' Equity and...

  • Page 68
    ... Form of Business Protection Agreement for Executive Officers (incorporated by reference to Exhibit 10.10 of Amendment No. 1 to Form S-1).* Amended and Restated Accounts Receivable Financing Agreement dated as of June 30, 2004 by and between the Company and The CIT Group/Commercial Services, Inc...

  • Page 69
    ...and Restated Security Agreement-Intellectual Property by and between CIT Group/ Commercial Services, Inc. and the Company dated September 30, 2005 (incorporated by reference to Exhibit 10.22 of Amendment No. 1 to Form S-1). Amended and Restated Credit Approved Receivables Purchasing Agreement by and...

  • Page 70
    ... PricewaterhouseCoopers LLP Section 302 Chief Executive Officer Certification Section 302 Chief Financial Officer Certification Section 906 Chief Executive Officer Certification Section 906 Chief Financial Officer Certification * Management contract or a compensatory plan or arrangement required to...

  • Page 71
    ... and on the date indicated. /s/ KEVIN A. PLANK Kevin A. Plank President, Chief Executive Officer, and Chairman of the Board (principal executive officer) Executive Vice President and Chief Financial Officer (principal accounting and financial officer) Director /s/ WAYNE A. MARINO Wayne...

  • Page 72
    ... for doubtful accounts ...Description-Sales returns and allowances For the year ended December 31, 2005 Estimated sales returns and allowances ...For the year ended December 31, 2004 Estimated sales returns and allowances ...For the year ended December 31, 2003 Estimated sales returns and allowances...

  • Page 73
    ... PRESIDENT OF OPERATIONS KIP J. FULKS SENIOR VICE PRESIDENT OF SOURCING, QUALITY ASSURANCE AND PRODUCT DEVELOPMENT WILLIAM R. MCDERMOTT PRESIDENT AND CHIEF EXECUTIVE OFFICER SAP AMERICAS JOSEPH D. GILES CHIEF INFORMATION OFFICER KEVIN M. HALEY VICE PRESIDENT- HOUSE COUNSEL, AND GENERAL COUNSEL...

  • Page 74
    UNDER ARMOUR INC. 1020 HULL STREET TIDE POINT BALTIMORE, MARYLAND 21230 ® WWW.UNDERARMOUR.COM 1.888.4ARMOUR