UNDER ARMOUR, INC.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help readers understand our
results of operations and financial condition, and is provided as a supplement
to, and should be read in conjunction with, our Condensed Consolidated Financial
Statements and the accompanying Notes to our Condensed Consolidated Financial
Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q, in our
Transition Report on Form 10-QT for the three months ended March 31, 2022 , filed
with the SEC on May 9, 2022 , and in our Annual Report on Form 10-K for Fiscal
2021, filed with the Securities Exchange Commission ("SEC") on February 23,
2022 , under the captions "Business" and "Risk Factors".
This Quarterly Report on Form 10-Q, including this MD&A, contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act
of 1934, as amended (the Exchange Act), and Section 27A of the U.S. Securities
Act of 1933, as amended ("the Securities Act"), and is subject to the safe
harbors created by those sections. All statements other than statements of
historical facts are statements that could be deemed forward-looking statements.
See "Forward Looking Statements."
All dollar and percentage comparisons made herein refer to the three and six
months ended September 30, 2022 compared with the three and six months ended
September 30, 2021 , unless otherwise noted.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Form 10-Q, including this MD&A, 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 share repurchase program, our future financial condition or results of operations, our prospects and strategies for future growth, the impact of the COVID-19 pandemic on our business and results of operations and the operations of our suppliers and logistics providers, expectations regarding promotional activities, freight, product cost pressures and foreign currency impacts, the impact of inflation on our results of operations, the development and introduction of new products, the implementation of our marketing and branding strategies, and the future benefits and opportunities from significant investments. In many cases, you can identify forward-looking statements by terms such as "may," "will," "could," "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-Q 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 MD&A herein and in our Annual Report on Form 10-K for Fiscal 2021. These factors include without limitation:
•the impact of the COVID-19 pandemic on our industry and our business, financial condition and results of operations, including recent impacts on the global supply chain;
•changes in general economic or market conditions, including increasing inflation, that could affect overall consumer spending or our industry;
•failure of our suppliers, manufacturers or logistics providers to produce or deliver our products in a timely or cost-effective manner;
•labor or other disruptions at ports or our suppliers or manufacturers;
•increased competition causing us to lose market share or reduce the prices of our products or to increase our marketing efforts significantly;
•fluctuations in the costs of raw materials and commodities we use in our products and our supply chain (including labor);
•changes to the financial health of our customers;
•our ability to successfully execute our long-term strategies;
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•our ability to effectively drive operational efficiency in our business and realize expected benefits from restructuring plans;
•our ability to effectively develop and launch new, innovative and updated products;
•our ability to accurately forecast consumer shopping and engagement preferences and consumer demand for our products and manage our inventory in response to changing demands;
•loss of key customers, suppliers or manufacturers;
•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 manage the increasingly complex operations of our global business;
•the impact of global events beyond our control, including military conflict;
•our ability to successfully manage or realize expected results from significant transactions and investments;
•our ability to effectively market and maintain a positive brand image;
•our ability to effectively meet the expectations of our stakeholders with respect to environmental, social and governance practices;
•the availability, integration and effective operation of information systems and other technology, as well as any potential interruption of such systems or technology;
•any disruptions, delays or deficiencies in the design, implementation or application of our global operating and financial reporting information technology system;
•our ability to attract key talent and retain the services of our senior management and other key employees;
•our ability to access capital and financing required to manage our business on terms acceptable to us;
•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 comply with existing trade and other regulations, and the potential impact of new trade, tariff and tax regulations on our profitability;
•risks related to data security or privacy breaches; and
•our potential exposure to litigation and other proceedings.
The forward-looking statements contained in this Form 10-Q reflect our views and assumptions only as of the date of this Form 10-Q. 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. OVERVIEW We are a leading developer, marketer, and distributor of branded performance apparel, footwear, and accessories. Our brand's moisture-wicking fabrications are engineered in various 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, and by consumers with active lifestyles.
Strategically and operationally, we remain focused on driving premium brand-right growth and improved profitability. Over the long term, our growth strategy is predicated on delivering industry-leading product innovation; sustained demand for our products; return-driven investments focused on connecting with our consumers through marketing activations and premium experiences; and the expansion of our direct-to-consumer and international businesses.
During the three months endedSeptember 30, 2022 , we faced a challenging retail environment that included increased promotions and discounting, elevated freight expenses, ongoing COVID-19 related impacts inChina and further negative impacts from changes in foreign currency rates. 29
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Table of Contents Quarterly Results
Financial highlights for the three months ended
•Total net revenues increased 1.8%.
•Within our channels, wholesale revenue increased 4.1% and direct-to-consumer revenue decreased 4.4%.
•Within our product categories, apparel revenue decreased 1.9%, footwear revenue increased 14.0%, and accessories revenue decreased 12.1%.
•Net revenue decreased 2.3% in
•Gross margin decreased 560 basis points to 45.4%.
•Selling, general and administrative expenses decreased 0.8%.
COVID-19 Update
The COVID-19 pandemic has caused, and we expect will continue to cause, disruption and volatility in our business and in the businesses of our wholesale customers, licensing partners, suppliers, logistics providers and vendors.
For instance, the COVID-19 pandemic has caused global logistical challenges, including increased freight costs, shipping container shortages, transportation delays, labor shortages and port congestion. These challenges have disrupted some of our normal inbound and outbound inventory flow, which has required us to incur increased freight costs, and caused us to make strategic decisions working with certain of our vendors and customers to cancel orders affected by capacity issues and supply chain delays. During the three months endedSeptember 30, 2022 , the pandemic continued to cause temporary closures and placed certain restrictions on our Brand and Factory House stores and distribution centers inChina . We expect these challenges and related impacts to negatively impact our financial results in Fiscal 2023. Moreover, governments worldwide continue to periodically impose preventative and protective actions, such as temporary travel bans, forced business closures, and stay-at-home orders, all in an effort to reduce the spread of the virus. Ongoing impacts of the COVID-19 pandemic and related preventative and protective actions inChina during the three months endedSeptember 30, 2022 have negatively impacted consumer traffic and demand and may continue to negatively impact our financial results. However, such government measures are not implemented consistently or simultaneously around the world, thus making our business susceptible to volatility on a global and regional basis. We believe we may continue to experience varying degrees of volatility, business disruptions and periods of closure of our stores, distribution centers and corporate facilities. Although, as ofSeptember 30, 2022 , substantially all of our Brand and Factory House stores and the stores of our wholesale customers were open, some of these retail stores inChina were operating with restrictive and precautionary measures in place such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and limited occupancy levels. The COVID-19 pandemic and related disruptions across the global supply chain and retail environment, remains a risk that could have material adverse impacts to our future revenue growth as well as to our overall profitability. The extent of the impact of the COVID-19 pandemic on our operational and financial performance depends on future developments that are outside of our control. For a more complete discussion of the COVID-19 related risks facing our business, refer to our "Risk Factors" section included in Item 1A of our Annual Report on Form 10-K for Fiscal 2021.
Effects of Inflation and Other Global Events
Our business could be impacted by continued or increasing inflation in key global markets, includingthe United States andEurope , and fluctuations in foreign currency exchange rates. InMarch 2022 , we announced our decision to no longer ship our products for sale inRussia as a result of the ongoing conflict withUkraine . We do not believe this will have a material impact on our revenues. However, we continue to monitor the broader impacts of theRussia Ukraine conflict on the global economy, including its effect on inflationary pressures and the price of oil globally. See "Risk Factors-Economic and Industry Risks-Our business depends on consumer purchases of discretionary items, which can be negatively impacted during an economic downturn or periods of inflation. This could materially harm our sales, profitability and financial condition"; "-Fluctuations in the cost of raw materials and commodities we use in our products and costs related to our supply chain could negatively affect our operating results"; "-Our financial results and ability to grow our business may be negatively impacted by global events 30
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beyond our control"; and "-Financial Risks-Our financial results could be adversely impacted by currency exchange rate fluctuations" included in Item 1A of our Annual Report on Form 10-K for Fiscal 2021.
Segment Presentation and Marketing
Corporate Other consists primarily of revenue and costs related to our MapMyRun and MapMyRide platforms (collectively "MMR") and other digital business opportunities, as well as general and administrative expenses not allocated to an operating segment, including expenses associated with centrally managed departments such as global marketing, global IT, global supply chain, innovation, and other corporate support functions; costs related to our global assets and global marketing, costs related to our headquarters; restructuring and impairment related charges; and certain foreign currency hedge gains and losses. Fiscal Year End Change As previously disclosed, we changed our fiscal year end fromDecember 31 to March 31 , effective for the fiscal year beginningApril 1, 2022 . Our current fiscal year will run fromApril 1, 2022 throughMarch 31, 2023 (Fiscal 2023). Consequently, there was no Fiscal 2022.
RESULTS OF OPERATIONS
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues:
Three months ended September 30, Six months ended September 30,
(In thousands) 2022 2021 2022 2021
Net revenues $ 1,573,885 $
1,545,532
860,051 757,428 1,578,911 1,440,141
Gross profit 713,834 788,104 1,344,031 1,456,925
Selling, general and administrative expenses 594,424 599,384 1,190,138 1,144,387
Restructuring and impairment charges - 16,656 - 19,269
Income (loss) from operations 119,410 172,064 153,893 293,269
Interest income (expense), net (3,555) (9,261) (9,560) (22,568)
Other income (expense), net (5,771) (29,476) (20,012) (67,970)
Income (loss) before income taxes 110,084 133,327 124,321 202,731
Income tax expense (benefit) 22,251 18,962 27,908 28,989
Income (loss) from equity method investments (908) (921) (1,806) (1,091)
Net income (loss) $ 86,925 $ 113,444 $ 94,607 $ 172,651
Three months ended September 30, Six months ended September 30,
(As a percentage of net revenues) 2022 2021 2022 2021
Net revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 54.6 % 49.0 % 54.0 % 49.7 %
Gross profit 45.4 % 51.0 % 46.0 % 50.3 %
Selling, general and administrative
expenses 37.8 % 38.8 % 40.7 % 39.5 %
Restructuring and impairment charges - % 1.1 % - % 0.7 %
Income (loss) from operations 7.6 % 11.1 % 5.3 % 10.1 %
Interest income (expense), net (0.2) % (0.6) % (0.3) % (0.8) %
Other income (expense), net (0.4) % (1.9) % (0.7) % (2.3) %
Income (loss) before income taxes 7.0 % 8.6 % 4.3 % 7.0 %
Income tax expense (benefit) 1.4 % 1.2 % 1.0 % 1.0 %
Loss from equity method investment (0.1) % (0.1) % (0.1) % - %
Net income (loss) 5.5 % 7.3 % 3.2 % 6.0 %
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Table of Contents Revenues Net revenues consist of net sales, license revenues, and revenues from digital subscriptions, other digital business opportunities and advertising. Net sales consist of sales from apparel, footwear and accessories products. Our license revenues primarily consist of fees paid to us by licensees in exchange for the use of our trademarks on their products.
The following tables summarize net revenues by product category and distribution channel for the periods indicated:
Three months ended September 30 ,
Six months ended
Change Change
(In thousands) 2022 2021 $ Change %(1) 2022 2021 $ Change %(1)
Net Revenues by Product Category
Apparel $ 1,038,268 $ 1,058,231 $ (19,963) (1.9) % $ 1,906,696 $ 1,932,424 $ (25,728) (1.3) %
Footwear 375,885 329,718 46,167 14.0 % 723,136 672,359 50,777 7.6 %
Accessories 111,117 126,345 (15,228) (12.1) % 207,948 237,848 (29,900) (12.6) %
Net Sales 1,525,270 1,514,294 10,976 0.7 % 2,837,780 2,842,631 (4,851) (0.2) %
License revenues 33,123 31,099 2,024 6.5 % 61,258 54,360 6,898 12.7 %Corporate Other (2) 15,492 139 15,353 N/M 23,904 75 23,829 N/M Total net revenues$ 1,573,885 $ 1,545,532 $ 28,353 1.8 %$ 2,922,942 $ 2,897,066 $ 25,876 0.9 % Net Revenues by Distribution Channel Wholesale$ 948,154 $ 910,655 $ 37,499 4.1 %$ 1,739,840 $ 1,678,266 $ 61,574 3.7 % Direct-to-consumer 577,116 603,639 (26,523) (4.4) % 1,097,940 1,164,365 (66,425) (5.7) %Net Sales 1,525,270 1,514,294 10,976 0.7 % 2,837,780 2,842,631 (4,851) (0.2) % License revenues 33,123 31,099 2,024 6.5 % 61,258 54,360 6,898 12.7 % Corporate Other (2) 15,492 139 15,353 N/M 23,904 75 23,829 N/M Total net revenues$ 1,573,885 $ 1,545,532 $ 28,353 1.8 %$ 2,922,942 $ 2,897,066 $ 25,876 0.9 %
(1) "N/M" = not meaningful
(2) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities.
Net sales
Net sales increased by$11.0 million , or 0.7%, to$1,525.3 million during the three months endedSeptember 30, 2022 , from$1,514.3 million during the three months endedSeptember 30, 2021 . Apparel decreased primarily due to the impact of foreign exchange rates and lower average selling prices, partially offset by higher unit sales. Footwear increased primarily due to higher units sales, partially offset by lower average selling prices. Accessories decreased primarily due to unfavorable product mix, lower units sales and the impact of foreign exchange rates. From a channel perspective, the increase in net sales was due to an increase in wholesale, partially offset by a decrease in direct-to-consumer. Net sales decreased by$4.9 million , or 0.2%, to$2,837.8 million during the six months endedSeptember 30, 2022 , from$2,842.6 million during the six months endedSeptember 30, 2021 . Apparel decreased primarily due to the impact of foreign exchange rates and lower average selling prices, partially offset by higher unit sales. Footwear increased primarily due to higher units sales, partially offset by lower average selling prices and the impact of foreign exchange rates. Accessories decreased primarily due to lower units sales, unfavorable product mix and the impact of foreign exchange rates. From a channel perspective, the decrease in net sales was due to a decrease in direct-to-consumer, partially offset by an increase in wholesale.
License revenues
License revenues increased by$2.0 million , or 6.5%, to$33.1 million during the three months endedSeptember 30, 2022 , from$31.1 million during the three months endedSeptember 30, 2021 , driven by higher demand and improved business and financial conditions of our licensees. The increased revenue was primarily from our licensing partners in theNorth America region. 32
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License revenues increased by$6.9 million , or 12.7%, to$61.3 million during the six months endedSeptember 30, 2022 , from$54.4 million during the six months endedSeptember 30, 2021 , driven by higher demand and improved business and financial conditions of our licensees. The increased revenue was primarily from our licensing partners in theAsia-Pacific andNorth America regions.
Gross Profit
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. 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 digital subscription and advertising revenues, primarily website hosting costs, and no cost of goods sold is associated with our license revenues. 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$20.2 million and$38.1 million for the three and six months endedSeptember 30, 2022 (three and six months endedSeptember 30, 2021 :$13.8 million and$40.0 million , respectively). Gross profit decreased by$74.3 million to$713.8 million during the three months endedSeptember 30, 2022 , as compared to$788.1 million during the three months endedSeptember 30, 2021 . Gross profit as a percentage of net revenues, or gross margin, decreased to 45.4% from 51.0%. This decrease in gross margin of 560 basis points was primarily driven by negative impacts of approximately:
•300 basis points from higher promotions and discounting;
•100 basis points of supply chain impact mainly due to elevated freight costs;
•70 basis points from unfavorable channel impacts;
•50 basis points of negative effects from changes in foreign currency; and
•30 basis points from unfavorable product mix due to the strength of footwear sales.
Gross profit decreased by$112.9 million to$1,344.0 million during the six months endedSeptember 30, 2022 , as compared to$1,456.9 million during the six months endedSeptember 30, 2021 . Gross profit as a percentage of net revenues, or gross margin, decreased to 46.0% from 50.3%. This decrease in gross margin of 430 basis points was primarily driven by negative impacts of approximately:
•190 basis points from higher promotions and discounting versus last year;
•130 basis points from supply chain impact mainly due to elevated freight costs;
•80 basis points from unfavorable channel, regional and product mix; and
•30 basis points of negative impact from changes in foreign currency.
We expect higher discounting and promotional activities and foreign exchange rate impacts to continue to negatively impact our gross margin for the next few quarters.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist of costs related to
marketing, selling, product innovation and supply chain, and corporate services.
We consolidate our selling, general and administrative expenses into two primary
categories: marketing and other. The other category is the sum of our selling,
product innovation and supply chain, and corporate services categories. The
marketing category consists primarily of sports and brand marketing, media, and
retail presentation. Sports and brand marketing includes professional, club and
collegiate sponsorship agreements, individual athlete and influencer agreements,
and providing and selling products directly to teams and individual athletes.
Media includes digital, broadcast, and print media outlets, including social and
mobile media. Retail presentation includes sales displays and concept shops and
depreciation expense specific
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to our in-store fixture programs. Our marketing costs are an important driver of
our growth.
Three months ended September 30, Six months ended September 30,
Change Change Change Change
(In thousands) 2022 2021 $ % 2022 2021 $ %
Selling, General and $ 594,424 $ 599,384 $ (4,960) (0.8) % $ 1,190,138 $ 1,144,387 $ 45,751 4.0 %
Administrative Expenses
Selling, general and administrative expenses decreased by$5.0 million , or 0.8%, during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . Within selling, general and administrative expense:
•Marketing costs decreased
•Other costs increased
As a percentage of net revenues, selling, general and administrative expenses decreased to 37.8% during the three months endedSeptember 30, 2022 as compared to 38.8% during the three months endedSeptember 30, 2021 .
Selling, general and administrative expenses increased by
•Marketing costs decreased$8.9 million or 2.9%, due to lower marketing activity during the period. As a percentage of net revenues, marketing costs decreased to 10.2% from 10.6%. •Other costs increased$54.6 million or 6.5%, primarily driven by higher litigation related accrual, compensation expenses, other promotion and selling expenses and travel-related expenses. As a percentage of net revenues, other costs increased to 30.6% from 28.9%. As a percentage of net revenues, selling, general and administrative expenses increased to 40.7% during the six months endedSeptember 30, 2022 as compared to 39.5% during the six months endedSeptember 30, 2021 .
Restructuring and Impairment Charges
Three months ended September 30, Six months ended September 30,
Change Change Change Change
(In thousands) 2022 2021 $ % 2022 2021 $ %
Restructuring and
Impairment Charges $ - $ 16,656 $ (16,656) (100.0) % $ - $ 19,269 $ (19,269) (100.0) %
Restructuring and impairment charges within our operating expenses were $16.7
million and $19.3 million during the three and six months ended September 30,
2021 , respectively. No charges have been recorded during the three and six
months ended September 30, 2022 . See Note 12 to our Condensed Consolidated
Financial Statements.
Interest Expense, net
Interest expense, net is primarily comprised of interest incurred on our debt
facilities, offset by interest income earned on our cash and cash equivalents.
Three months ended September 30, Six months ended September 30,
Change Change Change Change
(In thousands) 2022 2021 $ % 2022 2021 $ %
Interest expense, net $ 3,555 $ 9,261 $ (5,706) (61.6) % $ 9,560 $ 22,568 $ (13,008) (57.6) %
Interest expense, net decreased by
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Convertible Senior Notes as a result of repurchasing approximately
Interest expense, net decreased by$13.0 million to$9.6 million during the six months endedSeptember 30, 2022 . This was primarily due to an increase in interest income and a reduction in interest expense on our Convertible Senior Notes as a result of repurchasing approximately$419.1 million in aggregate principal amount during Fiscal 2021. See Note 8 to our Condensed Consolidated Financial Statements. Other Income (Expense), net Other income (expense), net primarily 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. Other income (expense), net also includes rent expense relating to lease assets held solely for sublet purposes, primarily the lease related to ourNew York City ,5th Avenue location. Three months ended September 30, Six months ended September 30, Change Change Change Change (In thousands) 2022 2021 $ % 2022 2021 $ % Other income (expense),$ (5,771) $ (29,476) $ 23,705 80.4 %$ (20,012) $ (67,970) $ 47,958 70.6 % net Other expense, net decreased by$23.7 million to$5.8 million during the three months endedSeptember 30, 2022 . This was primarily due to a loss of$23.8 million that was recognized during the three months endedSeptember 30, 2021 upon the extinguishment of$169.1 million in principal amount of our Convertible Senior Notes. Other expense, net decreased by$48.0 million to$20.0 million during the six months endedSeptember 30, 2022 . This was primarily due to a loss of$58.5 million that was recognized during the six months endedSeptember 30, 2021 upon the extinguishment of$419.1 million in principal amount of our Convertible Senior Notes. This was partially offset by a$5.3 million increase in losses associated with foreign currency hedges and a$4.4 million increase in losses from changes in foreign currency exchange rates.
Income Tax Expense (Benefit)
Three months ended September 30, Six months ended September 30,
Change Change Change Change
(In thousands) 2022 2021 $ % 2022 2021 $ %
Income tax expense $ 22,251 $ 18,962 $ 3,289 17.3 % $ 27,908 $ 28,989 $ (1,081) (3.7) %
(benefit)
Income tax expense increased $3.3 million to $22.3 million during the three
months ended September 30, 2022 from income tax expense of $19.0 million during
the same period in 2021. For the three months ended September 30, 2022 , our
effective tax rate was 20.2% compared to 14.2% for the same period in 2021. The
change in our effective tax rate was primarily driven by the proportion of
foreign earnings subject to tax and related valuation allowances in each period,
as well as one time discrete benefits recorded in the three months ended
September 30, 2021 .
Income tax expense decreased $1.1 million to $27.9 million during the six months
ended September 30, 2022 from income tax expense of $29.0 million during the
same period in 2021. For the six months ended September 30, 2022 , our effective
tax rate was 22.4% compared to 14.3% for the same period in 2021. The change in
our effective tax rate was primarily driven by the proportion of foreign
earnings subject to tax and related valuation allowances in each period, as well
as one time discrete benefits recorded in the six months ended September 30,
2021 .
SEGMENT RESULTS OF OPERATIONS
Our operating segments are based on how our Chief Operating Decision Maker
("CODM") makes decisions about allocating resources and assessing performance.
Our segments are defined by geographic regions, including North America , EMEA,
Asia-Pacific , and Latin America .
We exclude certain corporate costs from our segment profitability measures. We
report these costs within Corporate Other, which is designed to provide
increased transparency and comparability of our operating segments performance.
The costs included within Corporate Other consists largely of revenue and costs
related to our MMR
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platforms and other digital business opportunities, as well as general and administrative expenses not allocated to an operating segment, including expenses associated with centrally managed departments such as global marketing, global IT, global supply chain and innovation, and other corporate support functions; costs related to our global assets and global marketing; costs related to our headquarters; restructuring and restructuring related charges; and certain foreign currency hedge gains and losses.
The net revenues and operating income (loss) associated with our segments are summarized in the following tables.
Three Months EndedSeptember 30, 2022 Compared to Three Months Ended September 30, 2021 Net Revenues Three months ended September 30, (In thousands) 2022 2021 $ Change % Change(1) North America$ 1,011,823 $ 1,035,862 $ (24,039) (2.3) % EMEA 262,679 241,201 21,478 8.9 % Asia-Pacific 225,729 211,950 13,779 6.5 % Latin America 58,162 56,380 1,782 3.2 % Corporate Other (2) 15,492 139 15,353 N/M Total net revenues$ 1,573,885 $ 1,545,532 $ 28,353 1.8 % (1) "N/M" = not meaningful (2) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities.
The increase in total net revenues for the three months ended
•Net revenues in ourNorth America region decreased by$24.0 million , or 2.3%, to$1,011.8 million from$1,035.9 million . This was driven by decreases in both our wholesale and direct to consumer channels. Within the direct to consumer channel, net revenues were down due to a decrease in owned and operated retail store sales, partially offset by an increase in e-commerce sales. •Net revenues in our EMEA region increased by$21.5 million , or 8.9%, to$262.7 million from$241.2 million . This was driven by an increase in our wholesale channel, partially offset by a decrease in our direct to consumer channel. Within the direct to consumer channel, net revenues were lower due to decreases in both owned and operated retail store sales and e-commerce sales. Net revenues in our EMEA region were also negatively impacted by changes in foreign exchange rates. •Net revenues in ourAsia-Pacific region increased by$13.8 million , or 6.5%, to$225.7 million from$212.0 million . This was driven by increases in both our wholesale and direct to consumer channels. Within the direct to consumer channel, net revenues were higher due to an increase in owned and operated retail store sales, partially offset by a decrease in e-commerce sales. Net revenues in ourAsia-Pacific region were also negatively impacted by changes in foreign exchange rates. •Net revenues in ourLatin America region increased by$1.8 million , or 3.2%, to$58.2 million from$56.4 million . This was driven by an increase in our wholesale channel, partially offset by a decrease in our direct to consumer channel as we have moved to a distributor operating model for certain countries within this region. Within the direct to consumer channel, net revenues were lower due to a decrease in e-commerce sales, partially offset by an increase in owned and operated retails store sales. •Net revenues in our Corporate Other non-operating segment increased by$15.4 million to$15.5 million from$0.1 million . This was primarily driven by foreign currency hedge gains related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program. 36
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Operating Income (loss)
Three months ended September 30,
(In thousands) 2022 2021 $ Change % Change
North America $ 209,206 $ 292,367 $ (83,161) (28.4) %
EMEA 35,895 41,772 (5,877) (14.1) %
Asia-Pacific 46,134 40,529 5,605 13.8 %
Latin America 7,177 10,831 (3,654) (33.7) %
Corporate Other (1) (179,002) (213,435)
34,433 16.1 %
Total operating income (loss)
(1) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities. Corporate Other also includes expenses related to our central supporting functions. The decrease in total operating income for the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 , was driven by the following: •Operating income in ourNorth America region decreased by$83.2 million to$209.2 million from$292.4 million . This was primarily due to a decline in gross profit driven by lower revenues as discussed above, higher promotions and discounting, and higher freight costs. •Operating income in our EMEA region decreased by$5.9 million to$35.9 million from$41.8 million . This was primarily due to a decline in gross profit, partially offset by a decrease in marketing-related expenses. The decline in gross profit was primarily due to unfavorable channel mix and higher freight costs, partially offset by higher revenues as discussed above. •Operating income in ourAsia-Pacific region increased by$5.6 million to$46.1 million from$40.5 million . This was primarily due to an increase in revenues as discussed above and a decrease in marketing-related expenses, partially offset by an increase in inventory reserves due to excess inventory resulting from COVID-19 supply chain challenges and higher promotions and discounting. •Operating income in ourLatin America region decreased by$3.7 million to$7.2 million from$10.8 million . This was primarily due to a decline in gross profit, driven by higher freight costs. •Operating loss in our Corporate Other non-operating segment decreased$34.4 million . This was primarily due to gains from foreign currency hedges and no further restructuring charges, partially offset by an increase in litigation expenses. Six Months EndedSeptember 30, 2022 Compared to Six Months Ended September 30, 2021 Net Revenues Six months ended September 30, (In thousands) 2022 2021 $ Change % Change(1) North America$ 1,921,179 $ 1,941,355 $ (20,176) (1.0) % EMEA 467,860 448,425 19,435 4.3 % Asia-Pacific 402,394 404,319 (1,925) (0.5) % Latin America 107,605 102,892 4,713 4.6 % Corporate Other (2) 23,904 75 23,829 N/M Total net revenues$ 2,922,942 $ 2,897,066 $ 25,876 0.9 % (1) "N/M" = not meaningful (2) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenues from other digital business opportunities.
The increase in total net revenues for the six months ended
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•Net revenues in ourNorth America region decreased by$20.2 million , or 1.0%, to$1,921.2 million from$1,941.4 million . This was driven by a decrease in our direct to consumer channel, partially offset by an increase in our wholesale channel. Within the direct to consumer channel, net revenues were lower due to a decrease in owned and operated retail store sales, partially offset by an increase in e-commerce sales. •Net revenues in our EMEA region increased by$19.4 million , or 4.3%, to$467.9 million from$448.4 million . This was driven by an increase in our wholesale channel, partially offset by a decrease in our direct to consumer channel. Within our direct to consumer channel, net revenues were lower due to decreases in both e-commerce and owned and operated retail store sales. Net revenues in our EMEA region were also negatively impacted by changes in foreign exchange rates. •Net revenues in ourAsia-Pacific region decreased by$1.9 million , or 0.5%, to$402.4 million from$404.3 million . This was driven by an increase in our wholesale and distributor channel and an increase in licensing revenues, partially offset by a decrease in our direct to consumer channel. Within our direct to consumer channel, both e-commerce and owned and operated retail store sales were lower primarily due to COVID-19 related restrictions and limitations, particularly inChina . Net revenues in ourAsia-Pacific region were also negatively impacted by changes in foreign exchange rates. •Net revenues in ourLatin America region increased by$4.7 million , or 4.6%, to$107.6 million from$102.9 million . This was driven by an increase in our wholesale channel, partially offset by a decrease in our direct to consumer channel as we have moved to a distributor operating model for certain countries within this region. Within our direct to consumer channel, net revenues were lower due to decreases in both e-commerce and owned and operated retail store sales. •Net revenues in our Corporate Other non-operating segment increased by$23.8 million to$23.9 million from less than$0.1 million . This was primarily driven by foreign currency hedge gains related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program. Operating Income (loss) Six months ended September 30, (In thousands) 2022 2021 $ Change % Change North America$ 399,130 $ 518,136 $ (119,006) (23.0) % EMEA 54,076 81,664 (27,588) (33.8) % Asia-Pacific 66,079 64,575 1,504 2.3 % Latin America 13,411 16,832 (3,421) (20.3) % Corporate Other (1) (378,803) (387,938) 9,135 2.4 % Total operating income (loss)$ 153,893 $ 293,269 $ (139,376)
(47.5) %
(1) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities. Corporate Other also includes expenses related to our central supporting functions. The decrease in total operating income for the six months endedSeptember 30, 2022 , compared to the six months endedSeptember 30, 2021 , was primarily driven by the following: •Operating income in ourNorth America region decreased by$119.0 million , to$399.1 million from$518.1 million . This was primarily due to a decline in gross profit, driven by lower revenues as discussed above, higher promotions and discounting and higher freight costs. Additionally, operating income was down as a result of an increase in compensation expenses, selling expenses and facility related expenses. •Operating income in our EMEA region decreased by$27.6 million to$54.1 million from$81.7 million . This was primarily due to a decline in gross profit, partially offset by a decrease in marketing-related expenses. The decline in gross profit was primarily due to unfavorable channel mix and higher freight costs, partially offset by higher revenues as discussed above. •Operating income in ourAsia-Pacific region increased by$1.5 million to$66.1 million from$64.6 million . This was primarily due to a decrease in marketing-related expenses and facility costs, partially offset by lower gross profit, driven by higher promotions and discounting and lower net revenues as discussed above. 38
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•Operating income in ourLatin America region decreased by$3.4 million to$13.4 million from$16.8 million . This was primarily due to higher freight costs and higher marketing-related expenses, partially offset by higher net revenues. •Operating loss in our Corporate Other non-operating segment decreased$9.1 million . This was primarily due to gains from foreign currency hedges and no further restructuring charges, partially offset by an increase in litigation and consulting expenses.
LIQUIDITY AND CAPITAL RESOURCES
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 in our business as we historically recognize the majority of our net revenues in the last two quarters of the calendar year. Our capital investments have generally included expanding our in-store fixture and branded concept shop program, improvements and expansion of our distribution and corporate facilities, leasehold improvements to our 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 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. As ofSeptember 30, 2022 , we had approximately$853.7 million of cash and cash equivalents. We believe our cash and cash equivalents on hand, cash from operations, our ability to reduce our expenditures as needed, borrowings available to us under our amended credit agreement, our ability to access the capital markets, and other financing alternatives are adequate to meet our liquidity needs and capital expenditure requirements for at least the next twelve months. In addition, from time to time, based on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and subject to compliance with applicable laws and regulations, we may seek to utilize cash on hand, borrowings or raise capital to retire, repurchase or redeem our debt securities, repay debt, repurchase shares of our common stock or otherwise enter into similar transactions to support our capital structure and business or utilize excess cash flow on a strategic basis. For example, as described below, inFebruary 2022 , our Board of Directors authorized the repurchase of up to$500 million of our ClassC Common Stock over the following two years and, subsequently, we entered into agreements related to accelerated share repurchase transactions to repurchase$300 million ,$25 million and$25 million of our ClassC Common Stock inFebruary 2022 ,May 2022 andAugust 2022 , respectively. As discussed above, COVID-19 has continued to create supply chain challenges that will impact the availability of inventory over the next few quarters. If there are unexpected material impacts to our business in future periods from COVID-19 and we need to raise or conserve additional cash to fund our operations, we may consider additional alternatives similar to those we used in Fiscal 2020, including further reducing our expenditures, changing our investment strategies, negotiating payment terms with our customers and vendors, reductions in compensation costs, including through temporary reductions in pay and layoffs, and limiting certain marketing and capital expenditures. In addition, we may seek alternative sources of liquidity, including but not limited to, accessing the capital markets, sale leaseback transactions or other sales of assets, or other alternative financing measures. However, instability in, or tightening of the capital markets, could adversely affect our ability to access the capital markets on terms acceptable to us or at all. Although we believe we have adequate sources of liquidity over the long term, a prolonged or more severe economic recession, inflationary pressure, or a slow recovery could adversely affect our business and liquidity.
Refer to our "Risk Factors" section included in Item 1A of our Annual Report on Form 10-K for Fiscal 2021.
Share Repurchase Program OnFebruary 23, 2022 , our Board of Directors authorized us to repurchase up to$500 million (exclusive of fees and commissions) of outstanding shares of our ClassC Common Stock over the following two years. The ClassC Common Stock may be repurchased from time to time at prevailing prices in the open market, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, via private purchases through forward, derivative, accelerated share repurchase transactions or otherwise, subject to 39
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applicable regulatory restrictions on volume, pricing and timing. The timing and amount of any repurchases will depend on market conditions, our financial condition, results of operations, liquidity and other factors.
During the three months endedSeptember 30, 2022 , we entered into a master confirmation, including a supplemental confirmation (the "August ASR Agreement"), of an accelerated share repurchase transaction withHSBC Bank USA, National Association ("HSBC") to repurchase$25.0 million of our ClassC Common Stock, and received a total of 3.2 million shares of ClassC Common Stock from HSBC, which were immediately retired. As a result,$24.7 million was recorded to retained earnings to reflect the difference between the market price of the ClassC Common Stock repurchased and its par value. During the six months endedSeptember 30, 2022 , pursuant to the August ASR Agreement and the previously disclosed accelerated share repurchase transactions that we entered into inFebruary 2022 andMay 2022 (together with the August ASR Agreement, the "ASR Agreements"), we repurchased 9.9 million shares of ClassC Common Stock, which were immediately retired. As a result,$99.4 million was recorded to retained earnings to reflect the difference between the market price of the ClassC Common Stock repurchased and its par value. As ofSeptember 30, 2022 , we have repurchased$350 million or 26.1 million outstanding shares of our ClassC Common Stock under our share repurchase program. The number of shares was determined based on the average of the Rule 10b-18 volume-weighted average prices of our ClassC Common Stock during the terms of the transactions, less an agreed discount, and subject to adjustments pursuant to the terms of the ASR Agreements.
Cash Flows
The following table presents the major components of our cash flows provided by and used in operating, investing and financing activities for the periods presented:
Six months ended September 30,
(In thousands) 2022 2021 $ Change
Net cash provided by (used in):
Operating activities $ (2,499) $ 360,456 $ (362,955)
Investing activities (58,864) (48,343) (10,521)
Financing activities (48,788) (413,999) 365,211
Effect of exchange rate changes on cash and cash
equivalents (43,962) 8,608 (52,570)
Net increase (decrease) in cash and cash equivalents
Operating Activities Cash flows used in operating activities increased by$363.0 million , as compared to the six months endedSeptember 30, 2021 , primarily driven by a decrease in net income before the impact of non-cash items of$110.1 million and a decrease from changes in working capital of$252.9 million .
The changes in working capital were primarily due to the following outflows:
•$281.8 million from changes in inventories;
•$69.6 million from changes other non-current assets; and
•$60.7 million from changes in accounts receivable;
These outflows were partially offset by the following working capital inflows:
•$124.0 million from changes in accounts payable;
•$20.5 million from changes in accrued expenses and other liabilities; and
•$12.6 million resulting from changes in customer refund liabilities.
Investing Activities Cash flows used in investing activities increased by$10.5 million , as compared to the six months endedSeptember 30, 2021 , primarily due to an increase in capital expenditures. This was partially offset by the collection of the earn-out previously recorded in connection with the sale of the MyFitnessPal platform. Total capital expenditures during the six months endedSeptember 30, 2022 were$93.9 million , or approximately 3% of net revenues, representing a$44.7 million increase from$49.2 million during the six months endedSeptember 30, 2021 . During Fiscal 2021, we reduced capital expenditures in response to ongoing uncertainty related to COVID-19. Moving forward, we anticipate capital expenditures to normalize back towards our 40
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long-term operating principle of between 3% and 5% of annual net revenues as we invest in our global direct-to-consumer, e-Commerce and digital businesses, information technology systems, distribution centers and our global offices. InApril 2021 , we unveiled plans to construct a new global headquarters in the Port Covington area ofBaltimore, Maryland . Subsequently inMay 2022 , we announced additional details about our plan to design our new headquarters in line with our long-term sustainability strategy, which includes a commitment to reduce greenhouse gas emissions and increase sourcing of renewable electricity in our owned and operated facilities. We expect a portion of our capital expenditures over the short term to include investments incorporating sustainable and intelligent building design features into this facility.
Financing Activities
Cash flows used in financing activities decreased by$365.2 million , as compared to the six months endedSeptember 30, 2021 . During the six months endedSeptember 30, 2021 , we paid$506.3 million to certain exchanging holders for the exchange of$419.1 million in aggregate principal amount of our 1.50% convertible senior notes. Concurrently with this exchange we terminated certain capped call agreements and in exchange received approximately$91.7 million . During the six months endedSeptember 30, 2022 , we paid$50.0 million to repurchase Class C common shares through accelerate share repurchase programs. For more details, see discussion above under "Share Repurchase Program". Capital Resources Credit Facility OnMarch 8, 2019 , we entered into an amended and restated credit agreement by and among us, as borrower,JPMorgan Chase Bank, N.A ., as administrative agent, and the other lenders and arrangers party thereto (the "credit agreement"). InMay 2020 ,May 2021 andDecember 2021 , we entered into the first, second and third amendments to the credit agreement, respectively (the credit agreement as amended and the "amended credit agreement" or the "revolving credit facility"). The amended credit agreement provides for revolving credit commitments of$1.1 billion and has a term that ends onDecember 3, 2026 , with permitted extensions under certain circumstances. As ofSeptember 30, 2022 andMarch 31, 2022 , there were no amounts outstanding under the revolving credit facility. At our request and a lender's consent, commitments under the amended credit agreement may be increased by up to$300.0 million in aggregate, subject to certain conditions as set forth in the amended credit agreement. Incremental borrowings are uncommitted and the availability thereof will depend on market conditions at the time we seek to incur such borrowings. Borrowings, if any, under the revolving credit facility have maturities of less than one year. Up to$50.0 million of the facility may be used for the issuance of letters of credit. As ofSeptember 30, 2022 , there was$4.5 million of letters of credit outstanding (March 31, 2022 :$4.5 million ). Our obligations under the amended credit agreement are guaranteed by certain domestic significant subsidiaries ofUnder Armour, Inc. , subject to customary exceptions (the "subsidiary guarantors") and primarily secured by a first-priority security interest in substantially all of the assets ofUnder Armour, Inc. and the subsidiary guarantors, excluding real property, capital stock in and debt of subsidiaries ofUnder Armour, Inc. holding certain real property and other customary exceptions. The amended credit agreement provides for the permanent fall away of guarantees and collateral upon our achievement of investment grade rating from two rating agencies. The amended credit agreement contains negative covenants that, subject to significant exceptions, limit our ability to, among other things: incur additional secured and unsecured indebtedness; pledge the assets as security; make investments, loans, advances, guarantees and acquisitions (including investments in and loans to non-guarantor subsidiaries); undergo fundamental changes; sell assets outside the ordinary course of business; enter into transactions with affiliates; and make restricted payments. We are also required to maintain a ratio of consolidated EBITDA, to consolidated interest expense of not less than 3.50 to 1.0 (the "interest coverage covenant") and we are not permitted to allow the ratio of consolidated total indebtedness to consolidated EBITDA to be greater than 3.25 to 1.0 (the "leverage covenant"), as described in more detail in the amended credit agreement. As ofSeptember 30, 2022 , we were in compliance with the applicable covenants. In addition, the amended 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 41
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defined in the amended credit agreement, will be considered an event of default under the amended credit agreement.
The amended credit agreement implements SOFR as the replacement of LIBOR as a benchmark interest rate for theU.S. dollar borrowings (and analogous benchmark rate replacements for borrowings in Yen, Canadian Dollars, Pound Sterling and Euro). Borrowings under the amended credit agreement bear interest at a rate per annum equal to, at our option, either (a) an alternate base rate (for borrowings inU.S. dollars), (b) a term rate (for borrowings inU.S. dollars, Euros, Japanese Yen or Canadian Dollars) or (c) a "risk free" rate (for borrowings inU.S. dollars or Pounds Sterling), 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 leverage ratio of consolidated total indebtedness to consolidated EBITDA and ranges between 1.00% to 1.75% (or, in the case of alternate base rate loans 0.00% to 0.75%). We will also pay a commitment fee determined in accordance with the pricing grid on the average daily unused amount of the revolving credit facility and certain fees with respect to letters of credit. As ofSeptember 30, 2022 , the commitment fee was 15 basis points.
1.50% Convertible Senior Notes
InMay 2020 , we issued$500.0 million aggregate principal amount of 1.50% convertible senior notes due 2024 (the "Convertible Senior Notes"). The Convertible Senior Notes bear interest at the rate of 1.50% per annum, payable semiannually in arrears onJune 1 andDecember 1 of each year, beginningDecember 1, 2020 . The Convertible Senior Notes will mature onJune 1, 2024 , unless earlier converted in accordance with their terms, redeemed in accordance with their terms or repurchased. The net proceeds from the offering (including the net proceeds from the exercise of the over-allotment option) were$488.8 million , after deducting the initial purchasers' discount and estimated offering expenses that we paid, of which we used$47.9 million to pay the cost of the capped call transactions described below. We utilized$439.9 million to repay indebtedness that was outstanding under our revolving credit facility at the time, and to pay related fees and expenses. The Convertible Senior Notes are not secured and are not guaranteed by any of our subsidiaries. The indenture governing the Convertible Senior Notes does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. InMay 2021 andAugust 2021 , we entered into exchange agreements with certain holders of the Convertible Senior Notes, who agreed to exchange$250.0 million and approximately$169.1 million , respectively, in aggregate principal amount of the Convertible Senior Notes for cash and/or shares of our ClassC Common Stock, plus payment for accrued and unpaid interest (the "Exchanges"). In connection with the Exchanges, we paid approximately$300.0 million and$207.0 million cash, respectively, and issued approximately 11.1 million and 7.7 million shares of the Company's ClassC Common Stock, respectively, to the exchanging holders. Additionally, we recognized losses on debt extinguishment of$34.7 million during the second quarter of Fiscal 2021 and$23.8 million during the third quarter of Fiscal 2021, which were recorded within Other Income (Expense), net on our Condensed Consolidated Statements of Operations. Following the Exchanges, approximately$80.9 million aggregate principal amount of the Convertible Senior Notes remain outstanding. The Convertible Senior Notes are convertible into cash, shares of our ClassC Common Stock or a combination of cash and shares of ClassC Common Stock, at our election, as described further below. The initial conversion rate is 101.8589 shares of our ClassC Common Stock per$1,000 principal amount of Convertible Senior Notes (equivalent to an initial conversion price of approximately$9.82 per share of ClassC Common Stock), subject to adjustment if certain events occur. Prior to the close of business on the business day immediately precedingJanuary 1, 2024 , holders may (at their option) convert their Convertible Senior Notes only upon satisfaction of one or more of the following conditions: •during any calendar quarter commencing after the calendar quarter ended onSeptember 30, 2020 (and only during such calendar quarter), if the last reported sale price of our ClassC Common Stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day? •during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price per$1,000 principal amount of Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our ClassC Common Stock and the conversion rate on each such trading day? 42
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•upon the occurrence of specified corporate events or distributions on our Class
•if we call any Convertible Senior Notes for redemption prior to the close of
business on the business day immediately preceding
On or afterJanuary 1, 2024 , until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Convertible Senior Notes at the conversion rate at any time irrespective of the foregoing conditions. On or afterDecember 6, 2022 , we may redeem for cash all or any part of the Convertible Senior Notes, at our option, if the last reported sale price of our ClassC Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the aggregate principal amount of the Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If we undergo a fundamental change (as defined in the indenture governing the Convertible Senior Notes) prior to the maturity date, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their Convertible Senior Notes in principal amounts of$1,000 or an integral multiple thereof at a price which will be equal to 100% of the aggregate principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Concurrently with the offering of the Convertible Senior Notes, we entered into privately negotiated capped call transactions withJPMorgan Chase Bank, National Association ,HSBC Bank USA, National Association , andCitibank, N.A . (the "option counterparties"). The capped call transactions are expected generally to reduce potential dilution to our ClassC Common Stock upon any conversion of Convertible Senior Notes and/or offset any cash payments we are required to make in excess of the aggregate principal amount of converted Convertible Senior Notes upon any conversion thereof, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the capped call transactions is initially$13.4750 per share of our ClassC Common Stock, representing a premium of 75% above the last reported sale price of our ClassC Common Stock onMay 21, 2020 , and is subject to certain adjustments under the terms of the capped call transactions. InMay 2021 andAugust 2021 , concurrently with the Exchanges, we entered into, with each of the option counterparties, termination agreements relating to a number of options corresponding to the number of Convertible Senior Notes exchanged. Pursuant to such termination agreements, each of the option counterparties paid us a cash settlement amount in respect of the portion of capped call transactions being terminated. We received approximately$53.0 million and$38.6 million , respectively, in connection with such termination agreements related to the Exchanges. The Convertible Senior Notes contain a cash conversion feature. Prior to the adoption of ASU 2020-06, we had separated it into liability and equity components. We valued the liability component based on its borrowing rate for a similar debt instrument that does not contain a conversion feature. The equity component, which was recognized as a debt discount, was valued as the difference between the face value of the Convertible Senior Notes and the fair value of the liability component. We adopted ASU 2020-06 onJanuary 1, 2022 using the modified retrospective method. As a result, the Convertible Senior Notes are no longer accounted for as separate liability and equity components, but rather a single liability. See Note 2 to the Condensed Consolidated Financial Statements included in Part I of our Transition Report on Form 10-Q for the three months endedMarch 31, 2022 for more details. 3.250% Senior Notes InJune 2016 , we issued$600.0 million aggregate principal amount of 3.250% senior unsecured notes dueJune 15, 2026 (the "Senior Notes"). The proceeds were used to pay down amounts outstanding under the revolving credit facility, at the time. Interest is payable semi-annually onJune 15 andDecember 15 beginningDecember 15, 2016 . Prior toMarch 15, 2026 (three months prior to the maturity date of the Notes), we may redeem some or all of the Senior Notes at any time or from time to time at a redemption price equal to the greater of 100% of the principal amount of the Senior Notes to be redeemed or a "make-whole" amount applicable to such Senior Notes as described in the indenture governing the Senior Notes, plus accrued and unpaid interest to, but excluding, the redemption date.
The indenture governing the Senior Notes contains covenants, including limitations that restrict our ability and the ability of certain of our subsidiaries to create or incur secured indebtedness and enter into sale and
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leaseback transactions and our ability to consolidate, merge or transfer all or substantially all of our properties or assets to another person, in each case subject to material exceptions described in the indenture.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
Our Condensed Consolidated Financial Statements have been prepared in accordance withU.S. GAAP. 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. 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. Actual results could be significantly different from these estimates. Refer to Note 2 of our Consolidated Financial Statements, included in our Annual Report on Form 10-K for Fiscal 2021, for a summary of our significant accounting policies and our assessment of recently issued accounting standards.
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