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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
Form 10-Q
______________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No. 001-33202
______________________________________
UA-20200630_G1.JPG
UNDER ARMOUR, INC.
(Exact name of registrant as specified in its charter)
______________________________________
Maryland   52-1990078
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
1020 Hull Street
Baltimore, Maryland 21230
 
(410) 454-6428
(Address of principal executive offices) (Zip Code)   (Registrant’s telephone number, including area code)
 ______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock UAA New York Stock Exchange
Class C Common Stock UA New York Stock Exchange
(Title of each class) (Trading Symbols) (Name of each exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 31, 2020 there were 188,532,100 shares of Class A Common Stock, 34,450,000 shares of Class B Convertible Common Stock and 231,505,055 Class C Common Stock outstanding.


UNDER ARMOUR, INC.
June 30, 2020
INDEX TO FORM 10-Q
 
PART I.
Item 1.

1

2

3
4
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

6
7
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 6.



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
(In thousands, except share data)
June 30,
2020
December 31,
2019
June 30,
2019
Assets
Current assets
Cash and cash equivalents $ 1,079,409    $ 788,072    $ 455,726   
Accounts receivable, net 568,430    708,714    735,181   
Inventories 1,198,509    892,258    965,711   
Prepaid expenses and other current assets 242,661    313,165    287,829   
Total current assets 3,089,009    2,702,209    2,444,447   
Property and equipment, net 702,885    792,148    795,499   
Operating lease right-of-use assets 568,010    591,931    606,018   
Goodwill 486,868    550,178    548,762   
Intangible assets, net 38,748    36,345    39,527   
Deferred income taxes 42,589    82,379    129,403   
Other long term assets 75,232    88,341    116,252   
Total assets $ 5,003,341    $ 4,843,531    $ 4,679,908   
Liabilities and Stockholders’ Equity
Current liabilities
Revolving credit facility, current $ 250,000    $ —    $ —   
Accounts payable 664,288    618,194    607,382   
Accrued expenses 266,399    374,694    304,063   
Customer refund liabilities 199,016    219,424    241,456   
Operating lease liabilities 148,408    125,900    116,219   
Other current liabilities 90,503    83,797    63,521   
Total current liabilities 1,618,614    1,422,009    1,332,641   
Long term debt, net of current maturities 987,949    592,687    591,396   
Operating lease liabilities, non-current 892,465    580,635    601,665   
Other long term liabilities 80,899    98,113    105,932   
Total liabilities 3,579,927    2,693,444    2,631,634   
Commitments and contingencies (See Note 8)
Stockholders’ equity
Class A Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of June 30, 2020, December 31, 2019 and June 30, 2019; 188,460,784 shares issued and outstanding as of June 30, 2020, 188,289,680 shares issued and outstanding as of December 31, 2019, and 188,144,137 shares issued and outstanding as of June 30, 2019.
62    62    62   
Class B Convertible Common Stock, $0.0003 1/3 par value; 34,450,000 shares authorized, issued and outstanding as of June 30, 2020, December 31, 2019 and June 30, 2019.
11    11    11   
Class C Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of June 30, 2020, December 31, 2019 and June 30, 2019; 231,353,704 shares issued and outstanding as of June 30, 2020, 229,027,730 shares issued and outstanding as of December 31, 2019, and 228,652,955 shares issued and outstanding as of June 30, 2019.
77    76    76   
Additional paid-in capital 1,044,055    973,717    946,488   
Retained earnings 450,750    1,226,986    1,141,129   
Accumulated other comprehensive loss (71,541)   (50,765)   (39,492)  
Total stockholders’ equity 1,423,414    2,150,087    2,048,274   
Total liabilities and stockholders’ equity $ 5,003,341    $ 4,843,531    $ 4,679,908   
See accompanying notes.
1

Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(In thousands, except per share amounts)
 
  Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
Net revenues $ 707,640    $ 1,191,729    $ 1,637,880    $ 2,396,451   
Cost of goods sold 358,471    637,408    857,727    1,297,343   
Gross profit 349,169    554,321    780,153    1,099,108   
Selling, general and administrative expenses 479,906    565,803    1,032,607    1,075,331   
Restructuring and impairment charges 38,937    —    475,400    —   
Income (loss) from operations (169,674)   (11,482)   (727,854)   23,777   
Interest expense, net (11,336)   (5,988)   (17,296)   (10,226)  
Other expense, net (4,843)   (1,128)   (3,309)   (1,795)  
Income (loss) before income taxes (185,853)   (18,598)   (748,459)   11,756   
Income tax expense (benefit) (3,137)   (5,740)   18,410    2,391   
Loss from equity method investments (179)   (4,491)   (5,707)   (4,237)  
Net income (loss) $ (182,895)   $ (17,349)   $ (772,576)   $ 5,128   
Basic net income (loss) per share of Class A, B and C common stock $ (0.40)   $ (0.04)   $ (1.70)   $ 0.01   
Diluted net income (loss) per share of Class A, B and C common stock $ (0.40)   $ (0.04)   $ (1.70)   $ 0.01   
Weighted average common shares outstanding Class A, B and C common stock
Basic 454,121    451,066    453,496    450,411   
Diluted 454,121    451,066    453,496    453,717   
See accompanying notes.
2

Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
 
  Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
Net income (loss) $ (182,895)   $ (17,349)   $ (772,576)   $ 5,128   
Other comprehensive income (loss):
Foreign currency translation adjustment 6,636    1,408    (41,042)   7,398   
Unrealized gain (loss) on cash flow hedge, net of tax benefit (expense) of $2,958 and $552 for the three months ended June 30, 2020 and 2019, respectively, and ($8,477) and $3,152 for the six months ended June 30, 2020 and 2019, respectively.
(8,798)   391    23,746    (8,710)  
Gain (loss) on intra-entity foreign currency transactions 874    (1,115)   (3,480)   807   
Total other comprehensive income (loss) (1,288)   684    (20,776)   (505)  
Comprehensive income (loss) $ (184,183)   $ (16,665)   $ (793,352)   $ 4,623   
See accompanying notes.
3

Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Stockholders' Equity
(In thousands)


Class A
Common Stock
Class B
Convertible
Common Stock
Class C
Common Stock
Additional Paid-in-Capital Retained
Earnings
Accumulated Other Comprehensive Income (Loss) Total
Equity
Shares Amount Shares Amount Shares Amount
Balance as of March 31, 2019 187,980    62    34,450    11    228,489    76    931,352    1,158,482    (40,176)   $ 2,049,807   
Exercise of stock options 161    —    —    —    59    —    529    —    —    $ 529   
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements (5)   —    —    —    (6)   —    —    (4)   —    $ (4)  
Issuance of Class A Common Stock, net of forfeitures   —    —    —    —    —    —    —    —    $ —   
Issuance of Class C Common Stock, net of forfeitures —    —    —    —    111    —    1,473    —    —    $ 1,473   
Stock-based compensation expense —    —    —    —    —    —    13,134    —    —    $ 13,134   
Comprehensive income (loss) —    —    —    —    —    —    —    (17,349)   684    $ (16,665)  
Balance as of June 30, 2019 188,144    62    34,450    11    228,653    76    946,488    1,141,129    (39,492)   $ 2,048,274   
Balance as of December 31, 2018 187,710    62    34,450    11    226,422    75    916,628    1,139,082    (38,987)   $ 2,016,871   
Exercise of stock options 315    —    —    —    237    —    1,376    —    —    $ 1,376   
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements (15)   —    —    —    (158)   —    —    (3,081)   —    $ (3,081)  
Issuance of Class A Common Stock, net of forfeitures 134    —    —    —    —    —    —    —    —    $ —   
Issuance of Class C Common Stock, net of forfeitures —    —    —    —    2,152      2,859    —    —    $ 2,860   
Stock-based compensation expense —    —    —    —    —    —    25,625    —    —    $ 25,625   
Comprehensive income (loss) —    —    —    —    —    —    —    5,128    (505)   4,623   
Balance as of June 30, 2019 188,144    62    34,450    11    228,653    76    946,488    1,141,129    (39,492)   $ 2,048,274   
See accompanying notes.














4

Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Stockholders' Equity (continued)
(In thousands)

Class A
Common Stock
Class B
Convertible
Common Stock
Class C
Common Stock
Additional Paid-in-Capital Retained
Earnings
Accumulated Other Comprehensive Income (Loss) Total
Equity
Shares Amount Shares Amount Shares Amount
Balance as of March 31, 2020 188,451    62    34,450    11    231,150    77    985,831    634,452    (70,253)   $ 1,550,180   
Exercise of stock options   —    —    —      —    14    —    —    $ 14   
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements —    —    —    —    —    —    —    (807)   —    $ (807)  
Issuance of Class A Common Stock, net of forfeitures   —    —    —    —    —    —    —    —    $ —   
Issuance of Class C Common Stock, net of forfeitures —    —    —    —    202    —    1,195    —    —    $ 1,195   
Stock-based compensation expense —    —    —    —    —    —    12,792    —    —    $ 12,792   
Equity Component value of convertible note issuance, net —    —    —    —    —    —    44,223    —    —    $ 44,223   
Comprehensive loss —    —    —    —    —    —    —    (182,895)   (1,288)   (184,183)  
Balance as of June 30, 2020 188,461    62    34,450    11    231,354    77    1,044,055    450,750    (71,541)   $ 1,423,414   
Balance as of December 31, 2019 188,290    62    34,450    11    229,028    76    973,717    1,226,986    (50,765)   $ 2,150,087   
Exercise of stock options 145    —    —    —    133    —    499    —    —    $ 499   
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements (1)   —    —    —    (176)   —    —    (3,660)   —    $ (3,660)  
Issuance of Class A Common Stock, net of forfeitures 27    —    —    —    —    —    —    —    —    $ —   
Issuance of Class C Common Stock, net of forfeitures —    —    —    —    2,369      2,359    —    —    $ 2,360   
Stock-based compensation expense —    —    —    —    —    —    23,257    —    —    $ 23,257   
Equity Component value of convertible note issuance, net —    —    —    —    —    —    44,223    —    —    $ 44,223   
Comprehensive loss —    —    —    —    —    —    —    (772,576)   (20,776)   (793,352)  
Balance as of June 30, 2020 188,461    62    34,450    11    231,354    77    1,044,055    450,750    (71,541)   $ 1,423,414   
See accompanying notes.
5

Under Armour, Inc. and Subsidiaries`
Unaudited Consolidated Statements of Cash Flows
(In thousands)
  Six Months Ended June 30,
  2020 2019
Cash flows from operating activities
Net income (loss) $ (772,576)   $ 5,128   
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization 86,919    93,721   
Unrealized foreign currency exchange rate gain (loss) (1,134)   (3,077)  
Loss on disposal of property and equipment 825    2,447   
Impairment charges 449,090    —   
Amortization of bond premium 1,867    127   
Stock-based compensation 23,258    25,635   
Deferred income taxes 22,296    (13,890)  
Changes in reserves and allowances 19,772    (10,196)  
Changes in operating assets and liabilities:
Accounts receivable 126,059    (75,116)  
Inventories (307,430)   62,302   
Prepaid expenses and other assets 77,368    64,533   
Other non-current assets (301,523)   12,812   
Accounts payable 46,449    57,674   
Accrued expenses and other liabilities 230,670    (48,094)  
Customer refund liability (18,630)   (60,089)  
Income taxes payable and receivable 7,310    (1,210)  
Net cash provided by (used in) operating activities (309,410)   112,707   
Cash flows from investing activities
Purchases of property and equipment (50,862)   (77,046)  
Purchases of other assets —    (997)  
Purchase of businesses (38,190)   —   
Net cash used in investing activities (89,052)   (78,043)  
Cash flows from financing activities
Proceeds from long term debt and revolving credit facility 1,288,753    25,000   
Payments on long term debt and revolving credit facility (550,000)   (162,817)  
Purchase of capped call (47,850)   —   
Employee taxes paid for shares withheld for income taxes (2,732)   (3,077)  
Proceeds from exercise of stock options and other stock issuances 2,859    4,238   
Payments of debt financing costs (4,823)   (2,661)  
Other financing fees —    76   
Net cash provided by (used in) financing activities 686,207    (139,241)  
Effect of exchange rate changes on cash, cash equivalents and restricted cash 4,351    4,463   
Net increase in (decrease in) cash, cash equivalents and restricted cash 292,096    (100,114)  
Cash, cash equivalents and restricted cash
Beginning of period 796,008    566,060   
End of period $ 1,088,104    $ 465,946   
Non-cash investing and financing activities
Change in accrual for property and equipment $ (11,246)   $ (17,392)  
See accompanying notes.
6

Under Armour, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements

1. Description of the Business
Under Armour, Inc. and its wholly owned subsidiaries (the "Company") is a developer, marketer and distributor of branded athletic performance apparel, footwear, and accessories. The Company creates products engineered to solve problems and make athletes better, as well as digital health and fitness apps built to connect people and drive performance. The Company's products are made, sold and worn worldwide.

2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of the Company. Certain information in footnote disclosures normally included in annual financial statements was condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim consolidated financial statements. These consolidated financial statements are presented in U.S. Dollars. In the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair statement of the financial position and results of operations were included. Intercompany balances and transactions were eliminated upon consolidation. The consolidated balance sheet as of December 31, 2019 is derived from the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2019 (the “2019 Form 10-K”), which should be read in conjunction with these unaudited consolidated financial statements. The unaudited results for the three and six months ended June 30, 2020, are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or any other portions thereof.
On March 2, 2020, the Company acquired, on a cash free, debt free basis, 100% of Triple Pte. Ltd. ("Triple"), a distributor of the Company's products in Southeast Asia. The results of operations of this acquisition have been consolidated with those of the Company beginning on March 2, 2020. Refer to Note 4 for a discussion of the acquisition.
COVID-19
In March 2020, a novel strain of coronavirus (COVID-19) was declared a global pandemic by the World Health Organization. This pandemic has negatively affected the U.S. and global economies, disrupted global supply chains and financial markets, and led to significant travel and transportation restrictions, including mandatory closures and orders to “shelter-in-place”. During this period, the Company is focused on protecting the health and safety of its teammates, athletes and consumers, working with its customers and suppliers to minimize potential disruptions and supporting the community to address challenges posed by the global pandemic, while managing the Company's business in response to a changing dynamic. The Company's business operations and financial performance for the three and six months ended June 30, 2020 were materially impacted by COVID-19. These impacts are discussed within these notes to the unaudited consolidated financial statements, including but not limited to discussions related to long-lived asset and goodwill impairment, leases, long term debt, and income taxes.
In response to the pandemic, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act and similar legislation in foreign jurisdictions have been announced. The Company recognized payroll subsidies totaling $4.6 million and $5.2 million under these wage subsidy programs and similar plans in other jurisdictions for the three and six months ended June 30, 2020. The subsidies were recorded as a reduction of the associated costs which the Company incurred within selling, general and administrative expenses in the unaudited consolidated statement of operations. Further, the CARES Act includes modification to income tax provisions. Refer to Note 12 for discussion of the impacts of modifications to income tax provisions under the CARES Act.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. The Company's restricted cash is reserved for payments related to claims for its captive insurance program, which is included in prepaid expenses and other current assets on the Company's unaudited consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited consolidated balance sheets to the unaudited consolidated statements of cash flows.
7

(In thousands) June 30, 2020 December 31, 2019 June 30, 2019
Cash and cash equivalents $ 1,079,409    $ 788,072    $ 455,726   
Restricted cash 8,695    7,936    10,220   
Total Cash, cash equivalents and restricted cash $ 1,088,104    $ 796,008    $ 465,946   
Concentration of Credit Risk
Financial instruments that subject the Company to significant concentration of credit risk consist primarily of accounts receivable. The majority of the Company’s accounts receivable is due from large wholesale customers. One of the Company's customers accounted for 11% of accounts receivable as of June 30, 2020. None of the Company's customers accounted for more than 10% of accounts receivable as of December 31, 2019 and June 30, 2019, respectively. For the three and six months ended June 30, 2020 and 2019, no customer accounted for more than 10% of the Company's net revenues. Given the current U.S. and global economic environment and impacts of COVID-19, the Company regularly evaluates the credit risk of the large wholesale customers which make up the majority of the Company's accounts receivable. Refer to the "Credit Losses - Allowance for Doubtful Accounts" for a discussion of the evaluation of credit losses.
Sale of Accounts Receivable
The Company has an agreement with a financial institution to sell selected accounts receivable on a recurring, non-recourse basis. Under the agreement, at any time and from time to time the balance of up to $140.0 million of the Company's accounts receivable may be sold to the financial institution. The Company's ability to utilize these agreements, however, may be limited by the credit ratings of the Company's customers. The Company removes the sold accounts receivable from the unaudited consolidated balance sheets at the time of sale. The Company does not retain any interests in the sold accounts receivable. The Company acts as the collection agent for the outstanding accounts receivable on behalf of the financial institutions.
As of June 30, 2020, December 31, 2019 and June 30, 2019, no amounts remained outstanding under these agreements. The funding fee charged by the financial institutions is included in the other income (expense), net line item in the unaudited consolidated statement of operations.
Credit Losses - Allowance for Doubtful Accounts
Credit losses are the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit losses primarily through customer receivables associated with the sales of product within the Company's wholesale and Connected Fitness channels, recorded in accounts receivable, net on the Company's unaudited consolidated balance sheet. The Company also has other receivables, including receivables from licensing arrangements, recorded in prepaid expenses and other current assets on the Company's unaudited consolidated balance sheet.
Credit is extended to customers based on a credit review. The credit review considers each customer’s financial condition, including review of the customers established credit rating or the Company's assessment of the customer’s creditworthiness based on their financial statements absent a credit rating, local industry practices, and business strategy. A credit limit and terms are established for each customer based on the outcome of this review. The Company actively monitors ongoing credit exposure through review of customer balances against terms and payments against due dates. To mitigate credit risk, the Company may require customers to provide security in the form of guarantees, letters of credit, or prepayment. The Company is also exposed to credit losses through credit card receivables associated with the sales of products within the Company's direct to consumer channel.
The allowance for doubtful accounts is based on the Company’s assessment of the collectibility of customer accounts. The Company makes ongoing estimates relating to the collectibility of accounts receivable and records an allowance for estimated losses resulting from the inability of its customers to make required payments. The Company establishes expected credit losses by evaluating historical levels of credit losses, current economic conditions that may affect a customer’s ability to pay, and creditworthiness of significant customers. These inputs are used to determine a range of expected credit losses and an allowance is recorded within the range. Accounts receivable are written off when there is no reasonable expectation of recovery.

8

(In thousands) Balance as of March 31, 2020 Charged to
Costs and
Expenses
Write-Offs
Net of
Recoveries
Balance as of
June 30, 2020
Allowance for doubtful accounts -
accounts receivable, net
$ 20,558    $ 12,309    $ (3,209)   $ 29,658   
Allowance for doubtful accounts -
prepaid expenses and other current assets
$ —    $ 7,359    $ —    $ 7,359   

(In thousands) Balance as of December 31, 2019 Charged to
Costs and
Expenses
Write-Offs
Net of
Recoveries
Balance as of
June 30, 2020
Allowance for doubtful accounts -
accounts receivable, net
$ 15,083    $ 17,784    $ (3,209)   $ 29,658   
Allowance for doubtful accounts -
prepaid expenses and other current assets
$ —    $ 7,359    $ —    $ 7,359   

For the three months ended and six months ended June 30, 2020, the increase in the reserve is primarily due to the evaluation of certain account balances in connection with negative developments that represent a higher risk of credit default. The allowance for doubtful accounts was established with information available, including reasonable and supportable estimates of future risk, to the Company as of June 30, 2020. There may be further impacts due to COVID-19.
As of June 30, 2019, the allowance for doubtful accounts was $17.8 million.
Revenue Recognition
The Company recognizes revenue pursuant to Accounting Standards Codification 606 ("ASC 606"). Net revenues consist of net sales of apparel, footwear and accessories, license and Connected Fitness revenue. The Company recognizes revenue when it satisfies its performance obligations by transferring control of promised products or services to its customers, which occurs either at a point in time or over time, depending on when the customer obtains the ability to direct the use of and obtain substantially all of the remaining benefits from the products or services. The amount of revenue recognized considers terms of sale that create variability in the amount of consideration that the Company ultimately expects to be entitled to in exchange for the products or services and is subject to an overall constraint that a significant revenue reversal will not occur in future periods. Sales taxes imposed on the Company’s revenues from product sales are presented on a net basis on the unaudited consolidated statements of operations, and therefore do not impact net revenues or costs of goods sold.
Revenue transactions associated with the sale of apparel, footwear, and accessories, comprise a single performance obligation, which consists of the sale of products to customers either through wholesale or direct to consumer channels. The Company satisfies the performance obligation and records revenues when transfer of control has passed to the customer, based on the terms of sale. In the Company’s wholesale channel, transfer of control is based upon shipment under free on board shipping point for most goods or upon receipt by the customer depending on the country of the sale and the agreement with the customer. The Company may also ship product directly from its supplier to wholesale customers and recognize revenue when the product is delivered to and accepted by the customer. In the Company’s direct to consumer channel, transfer of control takes place at the point of sale for brand and factory house customers and upon shipment to substantially all e-commerce customers. Payment terms for wholesale transactions are established in accordance with local and industry practices. Payment is generally required within 30 to 60 days of shipment to or receipt by the wholesale customer in the United States, and generally within 60 to 90 days of shipment to or receipt by the wholesale customer internationally. The Company has provided extensions to standard payment terms for certain customers in connection with COVID-19. Payment is generally due at the time of sale for direct to consumer transactions.
Gift cards issued to customers by the Company are recorded as contract liabilities until they are redeemed, at which point revenue is recognized. The Company also estimates and recognizes revenue for gift card balances not expected to ever be redeemed ("breakage") to the extent that it does not have a legal obligation to remit the value of such unredeemed gift cards to the relevant jurisdiction as unclaimed or abandoned property. Such estimates are based upon historical redemption trends, with breakage income recognized in proportion to the pattern of actual customer redemptions.

9

Revenue from the Company's licensing arrangements is recognized over time during the period that licensees are provided access to the Company's trademarks and benefit from such access through their sales of licensed products. These arrangements require licensees to pay a sales-based royalty, which for most arrangements may be subject to a contractually guaranteed minimum royalty amount. Payments are generally due quarterly. The Company recognizes revenue for sales-based royalty arrangements (including those for which the royalty exceeds any contractually guaranteed minimum royalty amount) as licensed products are sold by the licensee. If a sales-based royalty is not ultimately expected to exceed a contractually guaranteed minimum royalty amount, the minimum is recognized as revenue over the contractual period, if all other criteria of revenue recognition have been met. This sales-based output measure of progress and pattern of recognition best represents the value transferred to the licensee over the term of the arrangement, as well as the amount of consideration that the Company is entitled to receive in exchange for providing access to its trademarks.
Revenue from Connected Fitness subscriptions is recognized on a gross basis and is recognized over the term of the subscription. The Company receives payments in advance of revenue recognition for subscriptions and these payments are recorded as contract liabilities in the Company's unaudited consolidated balance sheet. Related commission cost is included in selling, general and administrative expense in the unaudited consolidated statement of operations. Revenue from Connected Fitness digital advertising is recognized as the Company satisfies performance obligations pursuant to customer insertion orders.
The Company records reductions to revenue for estimated customer returns, allowances, markdowns and discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns, markdowns and allowances that have not yet been received by the Company. The actual amount of customer returns and allowances, which is inherently uncertain, may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to net sales in the period in which it makes such a determination. Provisions for customer specific discounts are based on negotiated arrangements with certain major customers. Reserves for returns, allowances, markdowns and discounts are included within customer refund liability and the value of inventory associated with reserves for sales returns are included within prepaid expenses and other current assets on the unaudited consolidated balance sheet. The Company reviews and refines these estimates on at least a quarterly basis. As of June 30, 2020, December 31, 2019 and June 30, 2019, there were $199.0 million, $219.4 million and $241.5 million, respectively, in reserves for returns, allowances, markdowns and discounts within customer refund liability and $59.7 million, $61.1 million and $68.6 million, respectively, as the estimated value of inventory associated with the reserves for sales returns within prepaid expenses and other current assets on the unaudited consolidated balance sheet.
Contract Liabilities
Contract liabilities are recorded when a customer pays consideration, or the Company has a right to an amount of consideration that is unconditional, before the transfer of a good or service to the customer, and thus represent the Company's obligation to transfer the good or service to the customer at a future date. The Company's contract liabilities primarily consist of payments received in advance of revenue recognition for subscriptions for the Company's Connected Fitness applications and royalty arrangements, included in other current liabilities, and gift cards, included in accrued expenses, on the Company's unaudited consolidated balance sheets. As of June 30, 2020, December 31, 2019, and June 30, 2019, contract liabilities were $62.0 million, $60.4 million and $58.4 million, respectively.
For the three and six months ended June 30, 2020, the Company recognized $11.3 million and $31.6 million of revenue that was previously included in contract liabilities as of December 31, 2019. For the three and six months ended June 30, 2019, the Company recognized $13.4 million and $32.6 million of revenue that was previously included in contract liabilities as of December 31, 2018. The change in the contract liabilities balance primarily results from the timing differences between the Company's satisfaction of performance obligations and the customer's payment. Commissions related to subscription revenue are capitalized and recognized over the subscription period.
Shipping and Handling Costs
The Company charges certain customers shipping and handling fees. These fees are recorded in net revenues. The Company incurs freight costs associated with shipping goods to customers. These costs are recorded as a component of cost of goods sold.
The Company also incurs outbound handling costs associated with preparing goods to ship to customers and certain costs to operate the Company’s distribution facilities. These costs are recorded as a component of
10

selling, general and administrative expenses and were $21.7 million and $20.5 million for the three months ended June 30, 2020 and 2019, respectively, and $36.5 million and $42.2 million for the six months ended June 30, 2020 and 2019, respectively.
Equity Method Investment
The Company has a common stock investment of 29.5% in Dome Corporation ("Dome"), the Company's Japanese licensee. The Company accounts for its investment in Dome under the equity method, given it has the ability to exercise significant influence, but not control, over Dome.
In the first quarter of 2020, the Company performed a qualitative assessment of potential impairment indicators for its investment in Dome and determined that indicators of impairment existed due to impacts from COVID-19. The Company performed a valuation of its investment in Dome and determined that the fair value of its investment is less than its carrying value by $3.7 million. The Company determined this decline in value to be other-than-temporary considering Dome's near and long-term financial forecast. Accordingly, the Company's results for the six months ended June 30, 2020 include the impact of recording a $3.7 million impairment of the Company's equity method investment in Dome during the first quarter. The impairment charge was recorded within income (loss) from equity method investment on the unaudited consolidated statements of operations and as a reduction to the invested balance within other long term assets on the unaudited consolidated balance sheets. The Company calculated fair value using the discounted cash flows model, which indicates the fair value of the investment based on the present value of the cash flows that it expects the investment to generate in the future.
As of June 30, 2020, December 31, 2019 and June 30, 2019 there was no carrying value, $5.1 million, and $48.6 million, respectively, associated with the Company’s equity investment in Dome. The Company did not record its allocable share of Dome's net loss for the three months ended June 30, 2020 as losses are not recognized in excess of the total investment. The Company recorded its allocable share of Dome’s net loss of $4.5 million for the three months ended June 30, 2019, and $1.4 million and $4.2 million for the six months ended June 30 2020 and 2019, respectively, within income (loss) from equity method investment on the unaudited consolidated statements of operations and as an adjustment to the invested balance within other long term assets on the unaudited consolidated balance sheets.
In addition to the investment in Dome, the Company has a license agreement with Dome. The Company recorded no license revenues from Dome for the three months ended June 30, 2020, based on the Company's collectability assessment. The Company recorded license revenues from Dome of $5.2 million for the three months ended June 30, 2019, and $6.7 million and $11.7 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, December 31, 2019, and June 30, 2019, the Company had $3.2 million, $15.6 million, and $5.2 million, respectively, in licensing receivables outstanding, recorded in the prepaid expenses and other current assets line item within the Company's unaudited consolidated balance sheets.
On March 2, 2020, as part of the Company's acquisition of Triple, the Company assumed 49.5% of common stock ownership in UA Sports (Thailand) Co., Ltd. (“UA Sports Thailand”). The Company accounts for its investment in UA Sports Thailand under the equity method, given it has the ability to exercise significant influence, but not control, over UA Sports Thailand. For the three and six months ended June 30, 2020, the Company recorded the allocable share of UA Sports Thailand’s net loss of $0.2 million and $0.6 million, respectively, within income (loss) from equity method investment on the unaudited consolidated statements of operations and as an adjustment to the invested balance within other long term assets on the unaudited consolidated balance sheets. As of June 30, 2020, the carrying value of the Company’s total investment in UA Sports Thailand was $5.0 million. Refer to Note 4 for discussion of the acquisition.

Management Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Further, the full impact of COVID-19 cannot reasonably be estimated. The Company has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date. The Company may experience further impacts based on long-term effects on the Company's customers and the countries in which the Company operates. As a result of these uncertainties, actual results could differ from those estimates and assumptions.
11

Recently Issued Accounting Standards
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting. The ASU provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. This ASU is currently effective and upon adoption may be applied prospectively to contract modifications and hedging relationships made on or before December 31, 2022. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12 to simplify the accounting for income taxes. The ASU impacts various topic areas within ASC 740, including accounting for taxes under hybrid tax regimes, accounting for increases in goodwill, allocation of tax amounts to separate company financial statements within a group that files a consolidated tax return, intraperiod tax allocation, interim period accounting, and accounting for ownership changes in investments, among other minor codification improvements. The guidance in this ASU becomes effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and may be early adopted. The Company has elected to early adopt this standard as of January 1, 2020. The adoption of this ASU did not have a material impact on the unaudited consolidated financial statements or disclosures in 2020. The aspect of this ASU which may have the most significant impact to the Company in future periods is the removal of a limit on the tax benefit recognized on pre-tax losses in interim periods that exceeds the anticipated tax benefit for the full year.
In June 2016, the FASB issued ASU 2016-13 - Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU amended the impairment model to utilize an expected loss methodology in place of the previously used incurred loss methodology, which results in more timely recognition of losses. The new standard applies to financial assets measured at amortized cost basis, including receivables that result from revenue transactions. The Company adopted this ASU on January 1, 2020 and there was no material impact to the unaudited consolidated financial statements as of the date of adoption. Results for reporting periods as of January 1, 2020 are presented under the new standard, while prior results continue to be reported under the previous standard.
3. Restructuring and Related Impairment Charges
On March 31, 2020, the Company's Board of Directors approved the previously announced restructuring plan ("2020 Restructuring") designed to rebalance the Company’s cost base to further improve profitability and cash flow generation. This restructuring plan was developed prior to assessing the potential impacts of the COVID-19 pandemic on the Company’s business and the Company continues to evaluate what actions may be necessary related to the pandemic.
In connection with the restructuring plan, the Company expects to incur total estimated pre-tax restructuring and related charges in the range of $475 million to $525 million during 2020 primarily consisting of up to approximately:
$175 million of cash restructuring charges, comprised of up to: $55 million in facility and lease termination costs, $25 million in employee severance and benefit costs, and $95 million in contract termination and other restructuring costs; and
$350 million of non-cash charges comprised of an impairment of $290 million related to the Company’s New York City flagship store and $60 million of intangibles and other asset related impairments.
The Company recorded $38.9 million and $340.0 million of restructuring and related impairment charges for the three and six months ended June 30, 2020, respectively. The summary of the costs recorded during the three
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and six months ended June 30, 2020, as well as the Company's current estimates of the amount expected to be incurred during the remainder of 2020 in connection with the 2020 restructuring plan is as follows:
Restructuring and Related Impairment Charges Recorded Estimated Restructuring and Related Impairment Charges to be Incurred (1)
(In thousands) Three months ended June 30, 2020 Six months ended June 30, 2020 Six Months Ending December 31, 2020 Year Ending December 31, 2020
Costs recorded in cost of goods sold:
Contract-based royalties $ —    $ —    $ 11,000    $ 11,000   
Total costs recorded in cost of goods sold —    —    11,000    11,000   
Costs recorded in restructuring and related impairment charges:
Property and equipment impairment 15,810    22,904    21,096    44,000   
ROU asset impairment —    290,813    —    290,813   
Employee related costs 829    829    24,171    25,000   
Contract exit costs (2) 14,942    14,942    100,058    115,000   
Other restructuring costs 7,356    10,538    28,462    39,000   
Total costs recorded in restructuring and related impairment charges 38,937    340,026    173,787    513,813   
Total restructuring and related impairment and restructuring related costs $ 38,937    $ 340,026    $ 184,787    $ 524,813   
(1) Estimated restructuring and related impairment charges to be incurred reflect the high-end of the range of the estimated remaining charges expected to be taken by the Company during 2020 in connection with the restructuring plan.
(2) Contract exit costs are primarily comprised of proposed lease exits of certain brand and factory house stores and office facilities, and proposed marketing and other contract exits.
All restructuring and related impairment charges are included in the Company's Corporate Other non-operating segment, of which $30.4 million are North America related, $0.3 million are Latin America related, and $0.1 million are EMEA related for the three months ended June 30, 2020 and $328.3 million are North America related, $0.3 million are Latin America related, and $0.1 million are EMEA related for the six months ended June 30, 2020.
The lease term for the Company's New York City flagship store commenced on March 1, 2020 and an operating lease ROU asset and corresponding operating lease liability of $344.8 million was recorded on the Company's unaudited consolidated balance sheet. In March 2020, as a part of the 2020 Restructuring, the Company made the strategic decision to forgo the opening of its New York City flagship store and the property is actively being marketed for sublease. Accordingly, in the first quarter of 2020, the Company recognized a ROU asset impairment of $290.8 million, reducing the carrying value of the lease asset to its estimated fair value. Fair value was estimated using an income-approach based on management's forecast of future cash flows expected to be derived from the property based on current sublease market rent. Rent expense or sublease income related to this lease will be recorded within other income (expense) on the unaudited consolidated statements of operations. There were no related ROU asset impairment charges for the three months ended June 30, 2020.
These charges require the Company to make certain judgements and estimates regarding the amount and timing of restructuring and related impairment charges or recoveries. The estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis,
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the Company conducts an evaluation of the related liabilities and expenses and revises its assumptions and estimates as appropriate as new or updated information becomes available.
A summary of the activity in the restructuring reserve related to the Company's 2020 restructuring plan, as well as prior restructuring plans in 2018 and 2017 are as follows:
(In thousands) Employee Related Costs Contract Exit Costs Other Restructuring Related Costs
Balance at January 1, 2020 $ 462    $ 17,843    $ —   
Additions charged to expense 376    2,366    10,533   
Cash payments charged against reserve —    (570)   (3,267)  
Changes in reserve estimate —    42    —   
Balance at June 30, 2020 $ 838    $ 19,681    $ 7,266   

4. Acquisition
On March 2, 2020, the Company acquired, on a cash free, debt free basis, 100% of Triple Pte. Ltd. ("Triple"), a distributor of the Company's products in Southeast Asia. The purchase price for the acquisition was $32.9 million in cash, net of $8.9 million of cash acquired that was held by Triple at closing and settlement of $5.1 million in pre-existing trade receivables due from Triple prior to the acquisition. The results of operations of this acquisition have been consolidated with those of the Company beginning on March 2, 2020.
The Company recognized $0.3 million and $1.0 million in acquisition related costs that were expensed during the three and six months ended June 30, 2020, respectively. These costs are included in selling, general and administrative expenses within the unaudited consolidated statement of operations. Pro forma results are not presented, as the acquisition was not considered material to the consolidated Company.

5. Long-Lived Asset and Goodwill Impairment
Long-Lived Asset Impairment
As a result of the impacts of COVID-19, the Company determined that sufficient indicators existed to trigger the performance of an interim long-lived asset impairment analysis as of March 31, 2020. In the first quarter of 2020, the Company performed undiscounted cash flow analyses on it's long-lived assets, including retail stores at an individual store level. Based on these undiscounted cash flow analyses, the Company determined that certain long-lived assets had net carrying values that exceeded their estimated undiscounted future cash flows. The Company estimated the fair values of these long-lived assets based on their discounted cash flows or market rent assessments. The Company compared these estimated fair values to the net carrying values. The Company recognized $83.8 million of long-lived asset impairment charges for the six months ended June 30, 2020. The long-lived impairment charge was recorded within restructuring and impairment charges on the unaudited consolidated statements of operations and as a reduction to the related asset balances on the unaudited consolidated balance sheets. The long-lived asset impairment charges are included within the Company's operating segments as follows: $43.4 million recorded in North America, $25.5 million recorded in Asia-Pacific, $12.8 million recorded in Latin America, and $2.1 million recorded in EMEA for the six months ended June 30, 2020. There were no triggering events or long-lived asset impairment charges recorded for the three months ended June 30, 2020.
The significant estimates, all of which are considered Level 3 inputs, used in the fair value methodology include: the Company's expectations for future operations and projected cash flows, including net revenue, gross profit and operating expenses and market conditions.
Additionally, the Company recognized $290.8 million of long-lived asset impairment charges related to the Company's New York City flagship store, which was recorded in connection with the Company's 2020 Restructuring Plan for the six months ended June 30, 2020. Refer to Note 3 for further discussion of the restructuring and related impairment charges.
Goodwill Impairment
As a result of the impacts of COVID-19, the Company determined that sufficient indicators existed to trigger the performance of an interim goodwill impairment analysis for all of the Company’s reporting units as of March 31, 2020. In the first quarter of 2020, the Company performed discounted cash flow analyses and determined that the
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estimated fair values of the Latin America reporting unit and the Canada reporting unit, within the North America operating segment, no longer exceeded its carrying value, resulting in an impairment of goodwill. The Company recognized goodwill impairment charges of $51.6 million for the six months ended June 30, 2020 for these reporting units. The goodwill impairment charge was recorded within restructuring and impairment charges on the unaudited consolidated statements of operations and as a reduction to the goodwill balance within goodwill on the unaudited consolidated balance sheets. There were no triggering events or goodwill impairment charges recorded for the three months ended June 30, 2020.
The determination of the Company’s reporting units' fair value includes assumptions that are subject to various risks and uncertainties. The significant estimates, all of which are considered Level 3 inputs, used in the discounted cash flow analyses include: the Company’s weighted average cost of capital, adjusted for the risk attributable to the geographic regions of the reporting unit's business, long-term rate of growth and profitability of the reporting unit's business, working capital effects, and changes in market conditions, consumer trends or strategy.
As of March 31, 2020, the fair value of each of the Company's other reporting units substantially exceeded its carrying value with the exception of the EMEA reporting unit. The fair value of the EMEA reporting unit exceeded its carrying value by 16%. Holding all other assumptions used in the fair value measurement of the EMEA reporting unit constant, a reduction in the growth rate of revenue by 1.5 percentage points or a reduction in the growth rate of net income by 2.3 percentage points would eliminate the headroom. No events occurred during the three and six months ended June 30, 2020 that indicated it was more likely than not that goodwill was impaired for this reporting unit.
The following table summarizes changes in the carrying amount of the Company’s goodwill by reportable segment as of the periods indicated:
(In thousands)  North America EMEA Asia-Pacific Latin America  Connected Fitness Total
Balance as of December 31, 2019 318,288    106,066    79,168    46,656    —    550,178   
Effect of currency translation adjustment (1,573)   (3,462)   3,726    (10,426)   —    (11,735)  
Impairment (15,345)   —    —    (36,230)   —    (51,575)  
Balance as of June 30, 2020 $ 301,370    $ 102,604    $ 82,894    $ —    $ —    $ 486,868   

6. Leases
The Company enters into operating leases both domestically and internationally, to lease certain warehouse space, office facilities, space for its brand and factory house stores and certain equipment under non-cancelable operating leases. The leases expire at various dates through 2035, excluding extensions at the Company's option, and include provisions for rental adjustments.
The Company accounts for a contract as a lease when it has the right to direct the use of the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines the initial classification and measurement of its right-of-use ("ROU") assets and lease liabilities at the lease commencement date and thereafter if modified. ROU assets represent the Company’s right to control the underlying assets under lease, over the contractual term. ROU assets and lease liabilities are recognized on the unaudited consolidated balance sheets based on the present value of future minimum lease payments to be made over the lease term. ROU assets and lease liabilities are established on the unaudited consolidated balance sheets for leases with an expected term greater than one year. Short-term lease payments were not material for the quarter ended June 30, 2020.
As the rate implicit in the lease is not readily determinable, the Company uses its secured incremental borrowing rate to determine the present value of the lease payments. The Company calculates the incremental borrowing rate based on the current market yield curve and adjusts for foreign currency for international leases.
Fixed lease costs are included in the recognition of ROU assets and lease liabilities. Variable lease costs are not included in the measurement of the lease liability. These variable lease payments are recognized in the unaudited consolidated statements of operations in the period in which the obligation for those payments is incurred. Variable lease payments primarily consist of payments dependent on sales in brand and factory house stores. The Company has elected to combine lease and non-lease components in the determination of lease costs for its leases. The lease liability includes lease payments related to options to extend or renew the lease term only if the Company is reasonably certain to exercise those options.
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The Company recognizes lease expense on a straight-line basis over the lease term. Included in selling, general and administrative expenses were operating lease costs of $33.9 million and $38.7 million for the three months ended June 30, 2020 and 2019, respectively, and $71.7 million and $75.8 million for the six months ended June 30, 2020 and 2019, respectively, under non-cancelable operating lease agreements. The operating lease costs include $0.6 million and $3.2 million in variable lease payments, for the three months ended June 30, 2020 and 2019, respectively, and $2.6 million and $5.4 million for the six months ended June 30, 2020 and 2019, respectively.
As a result of the impacts of COVID-19, the Company sought concessions from landlords for certain leases of brand and factory house stores in the form of rent deferrals or rent waivers. Consistent with updated guidance from the FASB in April 2020, the Company elected to account for the accounting policy of treating these concessions as though the enforceable rights and obligations to the deferrals existed in the respective contracts at lease inception and will not account for the concessions as lease modifications, unless the concession results in a substantial change in the Company's obligations. The Company's rent deferrals had no impact to rent expense during the three and six months ended June 30, 2020 and amounts deferred and payable in future periods have been included in short term lease liability on the Company's unaudited consolidated balance sheet as of June 30, 2020. The Company's rent waivers, which were recorded as a reduction of rent expense, were not material for the three and six months ended June 30, 2020.
There are no residual value guarantees that exist, and there are no restrictions or covenants imposed by leases. The Company rents or subleases excess office facilities and warehouse space to third parties. Sublease income is not material.
Supplemental balance sheet information related to leases was as follows:
Three months ended June 30, 2020 Three months ended June 30, 2019
Weighted average remaining lease term (in years) 9.40 7.10
Weighted average discount rate 3.92 4.30
Supplemental cash flow and other information related to leases was as follows:
Three months ended June 30, Six months ended June 30,
(In thousands) 2020 2019 2020 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases $ 37,517    $ 33,599    $ 75,313    $ 50,852   
Leased assets obtained in exchange for new operating lease liabilities $ 9,994    $ 26,056    $ 374,893    $ 30,100   
Maturities of lease liabilities are as follows:
(In thousands)
2020 $ 88,052   
2021 183,938   
2022 156,279   
2023 139,553   
2024 121,711   
2025 and thereafter 561,369   
Total lease payments $ 1,250,902   
Less: Interest 210,029   
Total present value of lease liabilities (1) $ 1,040,873   
(1) Amounts above reflect lease liabilities associated with the Company's New York City flagship store lease, which commenced on March 1, 2020. However, refer to Note 3 for discussion of the impairment of the associated ROU lease asset.
As of June 30, 2020, the Company has additional operating lease obligations that have not yet commenced of approximately $3.0 million which are not reflected in the table above.

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7. Long Term Debt
Credit Facility
In May 2020, the Company entered into an amendment to the amended and restated credit agreement, dated as of March 8, 2019, by and among the Company, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders and arrangers party thereto (the "prior credit agreement", as amended, the "amended credit agreement” or "the revolving credit facility"). As described below, the amended credit agreement provides the Company with certain relief from and revisions to its financial covenants for specified periods, which the Company expects will provide it with sufficient access to liquidity during the ongoing disruption related to the COVID-19 pandemic.
The amended credit agreement has a term of five years, maturing in March 2024, with permitted extensions under certain circumstances, and provides revolving credit commitments of up to $1.1 billion of borrowings, a reduction from the $1.25 billion of commitments under the prior credit agreement. As of June 30, 2020, there was $250 million outstanding under the revolving credit facility. During the three months ended June 30, 2020, the Company repaid $450 million of borrowings under the revolving credit facility, which the Company had borrowed as a precautionary measure in order to increase its cash position and preserve liquidity given the ongoing uncertainty in global markets resulting from the COVID-19 pandemic. These amounts were primarily repaid using the net proceeds of the Company’s issuance of Convertible Senior Notes, as described below. As of December 31, 2019 and June 30, 2019, there were no amounts outstanding under the revolving credit facility.
Except during the covenant suspension period (as defined below), at the Company's request and the 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 the Company seeks to incur such borrowings.
Borrowings 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. There were $14.7 million, $5.0 million and $4.6 million of letters of credit outstanding as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively.
The obligations of the Company under the amended credit agreement, which under the prior credit agreement were unsecured and not guaranteed by subsidiaries, are guaranteed by certain domestic significant subsidiaries of the Company, subject to customary exceptions (the “subsidiary guarantors”) and primarily secured by a first-priority security interest in substantially all of the assets of the Company and the subsidiary guarantors, excluding real property, capital stock in and debt of subsidiaries of the Company holding certain real property and other customary exceptions.
As with the prior credit agreement, the amended credit agreement contains negative covenants that limit the Company's ability to engage in certain transactions. The negative covenant governing the incurrence of indebtedness of the Company and its subsidiaries affords $50.0 million of additional capacity for secured debt, while the capacity to incur $100.0 million of additional unsecured debt remains unchanged from the prior credit agreement. The Company’s future investments in and loans to non-guarantor subsidiaries are subject to additional limitations under the amended credit agreement, as is the ability of the Company to sell assets outside the ordinary course of business. The amended credit agreement further provides for a temporary suspension of the Company’s ability to make certain voluntary restricted payments during the covenant suspension period.
The amended credit agreement also contains financial covenants that require the Company to comply with specific consolidated leverage and interest coverage ratios during specified periods. Under the prior credit agreement, the Company was 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 was 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 prior credit agreement. The amended credit agreement provides for suspensions of and adjustments to the leverage covenant (including definitional changes impacting the calculation of the ratio) and the interest coverage covenant beginning with the quarter ended June 30, 2020, and ending on the date on which financial statements for the quarter ended June 30, 2022 are delivered to lenders under the amended credit agreement (the “covenant suspension period”) as summarized below and described in more detail in the amended credit agreement:
For the fiscal quarter ended June 30, 2020, the interest coverage covenant is suspended and the leverage covenant will require that the ratio of consolidated total indebtedness to consolidated EBITDA be less than or equal to 4.5 to 1.0.
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For the fiscal quarters ending September 30, 2020, December 31, 2020, March 31, 2021 and June 30, 2021, compliance with the interest coverage covenant and the leverage covenant are both suspended. Beginning on September 30, 2020 through and including December 31, 2021, the Company must instead maintain minimum liquidity of $550.0 million (the “liquidity covenant”) (with liquidity being the sum of certain cash and cash equivalents held by the Company and its subsidiaries and available borrowing capacity under the amended credit agreement).
For the fiscal quarter ending September 30, 2021, the interest coverage covenant is suspended, the leverage covenant will require that the ratio of consolidated total indebtedness to consolidated EBITDA be less than or equal to 4.5 to 1.0 and the Company must comply with the liquidity covenant.
For the fiscal quarter ending December 31, 2021, the interest coverage covenant is suspended, the leverage covenant will require that the ratio of consolidated total indebtedness to consolidated EBITDA be less than or equal to 4.0 to 1.0 and the Company must comply with the liquidity covenant.
Beginning on January 1, 2022, the liquidity covenant is terminated. For the fiscal quarter ending March 31, 2022, the leverage covenant will require that the ratio of consolidated total indebtedness to consolidated EBITDA be less than or equal to 3.5 to 1.0 and the interest coverage covenant will require that the ratio of consolidated EBITDA to consolidated interest expense be greater than or equal to 3.5 to 1.0.
As of June 30, 2020, the Company was 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 similar to the prior credit agreement, and includes a cross default provision whereby an event of default under other material indebtedness, as defined in the amended credit agreement, will be considered an event of default under the amended credit agreement.
During the covenant suspension period, the applicable margin for loans will be 2.00% for adjusted LIBOR loans and 1.00% for alternate base rate loans. Otherwise, borrowings under the credit agreement bear interest at a rate per annum equal to, at the Company’s option, either (a) an alternate base rate, or (b) a rate based on the rates applicable for deposits in the interbank market for U.S. Dollars or the applicable currency in which the loans are made (“adjusted LIBOR”), 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 consolidated leverage ratio and ranges between 1.25% to 1.75% for adjusted LIBOR loans and 0.25% to 0.75% for alternate base rate loans. The weighted average interest rate under the revolving credit facility borrowings was 2.2% during the three months ended June 30, 2020, and 2.3% and 3.6% for the six months ended June 30, 2020 and 2019, respectively. During the covenant suspension period, the commitment fee rate will be 0.40% per annum. Otherwise, the Company pays 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 of June 30, 2020, the commitment fee was 15.0 basis points. The Company incurred and deferred $7.2 million in financing costs in connection with the amended credit agreement.
1.50% Convertible Senior Notes
In May 2020, the Company 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 on June 1 and December 1 of each year, beginning December 1, 2020. The Convertible Senior Notes will mature on June 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) was $488.8 million, after deducting the initial purchasers’ discount and estimated offering expenses paid by the Company, of which the Company used $47.9 million to pay the cost of the capped call transactions described below. The Company utilized $439.9 million to repay indebtedness outstanding under its revolving credit facility and pay related fees and expenses.
The Convertible Senior Notes are not secured and are not guaranteed by any of the Company’s 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 the Company or any of its subsidiaries.
The Convertible Senior Notes are convertible into cash, shares of the Company’s Class C common stock or a combination of cash and shares of Class C common stock, at the Company’s election as described further below. The initial conversion rate is 101.8589 shares of the Company’s Class C common stock per $1,000 principal
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amount of Convertible Senior Notes (equivalent to an initial conversion price of approximately $9.82 per share of Class C common stock), subject to adjustment if certain events occur. Prior to the close of business on the business day immediately preceding January 1, 2024, the Convertible Senior Notes will be convertible only upon satisfaction of one or more of the following conditions:
during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s Class C 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 the Company’s Class C common stock and the conversion rate on each such trading day;
upon the occurrence of specified corporate events or distributions on the Company’s Class C common stock; or
if the Company calls any Convertible Senior Notes for redemption prior to the close of business on the business day immediately preceding January 1, 2024.
On or after January 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 after December 6, 2022, the Company may redeem for cash all or any part of the Convertible Senior Notes, at its option, if the last reported sale price of the Company’s Class C 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 the Company provides 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 the Company undergoes 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 the Company 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, the Company entered into privately negotiated capped call transactions with JPMorgan Chase Bank, National Association, HSBC Bank USA, National Association and Citibank, N.A. (the “option counterparties”). The capped call transactions are expected generally to reduce potential dilution to the Company’s Class C common stock upon any conversion of Convertible Senior Notes and/or offset any cash payments the Company is 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 the Company’s Class C common stock, representing a premium of 75% above the last reported sale price of the Company’s Class C common stock on May 21, 2020, and is subject to certain adjustments under the terms of the capped call transactions.
The Convertible Senior Notes contain a cash conversion feature, and as a result, the Company has separated it into liability and equity components. The Company 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 is 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.
In connection with the Convertible Senior Notes issuance, the Company incurred deferred financing costs of $12.0 million, primarily related to fees paid to the initial purchasers of the offering, as well as legal and accounting fees. These costs were allocated on a pro rata basis, with $9.7 million allocated to the debt component and $2.3 million allocated to the equity component.
The debt discount and the debt portion of the deferred financing costs are being amortized to interest expense over the term of the Convertible Senior Notes using an effective interest rate of 7%.
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The Convertible Senior Notes consist of the following components:
(In thousands) June 30, 2020 June 30, 2019
Liability component
Principal $ 500,000    $ —   
Unamortized debt discount (92,777)   —   
Unamortized issuance costs (9,611)   —   
Net carrying amount $ 397,612    $ —   
Equity component, net of issuance costs $ 92,253    $ —   
Interest expense related to the Convertible Senior Notes consists of the following as of the periods indicated:
Three months ended June 30, Six months ended June 30,
(In thousands) 2020 2019 2020 2019
Coupon interest $ 625    $ —    $ 625    $ —   
Non-cash amortization of debt discount 1,740    —    1,740    —   
Amortization of deferred financing costs 204    —    204    —   
Convertible senior notes interest expense $2,569 $0 $2,569 $0

In connection with the issuance of the Convertible Senior Notes, the Company recorded a $12.1 million net deferred tax liability and a corresponding reduction in valuation allowance. As a result, there was no net impact to the Company’s deferred income taxes or additional paid in capital on the unaudited consolidated balance sheet.
3.250% Senior Notes
In June 2016, the Company issued $600.0 million aggregate principal amount of 3.250% senior unsecured notes due June 15, 2026 (the “Senior Notes”). Interest is payable semi-annually on June 15 and December 15 beginning December 15, 2016. The Company may redeem some or all of the Senior Notes at any time, or from time to time, at redemption prices described in the indenture governing the Senior Notes. The indenture governing the Senior Notes contains negative covenants that limit the Company’s ability to engage in certain transactions and are subject to material exceptions described in the indenture. The Company incurred and deferred $5.3 million in financing costs in connection with the Senior Notes.
Interest Expense
Interest expense, net, was $11.3 million and $6.0 million for the three months ended June 30, 2020 and 2019, respectively, and $17.3 million and $10.2 million for the six months ended June 30, 2020 and 2019, respectively, inclusive of amounts related to the Senior Convertible Notes, as detailed above. Interest expense includes amortization of deferred financing costs, bank fees, capital and built-to-suit lease interest and interest expense under the credit and other long term debt facilities.
The Company monitors the financial health and stability of its lenders under the credit and other long term debt facilities, however during any period of significant instability in the credit markets, lenders could be negatively impacted in their ability to perform under these facilities.

8. Commitments and Contingencies
From time to time, the Company is involved in litigation and other proceedings, including matters related to commercial and intellectual property disputes, as well as trade, regulatory and other claims related to its business. Other than as described below, the Company believes that all current proceedings are routine in nature and incidental to the conduct of its business, and that the ultimate resolution of any such proceedings will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

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In re Under Armour Securities Litigation
On March 23, 2017, three separate securities cases previously filed against the Company in the United States District Court for the District of Maryland (the “District Court”) were consolidated under the caption In re Under Armour Securities Litigation, Case No. 17-cv-00388-RDB (the “Consolidated Action”). On August 4, 2017, the lead plaintiff in the Consolidated Action, North East Scotland Pension Fund, joined by named plaintiff Bucks County Employees Retirement Fund, filed a consolidated amended complaint (the “Amended Complaint”) against the Company, the Company’s then-Chief Executive Officer, Kevin Plank, and former Chief Financial Officers Lawrence Molloy and Brad Dickerson. The Amended Complaint alleged violations of Section 10(b) (and Rule 10b-5) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 20(a) control person liability under the Exchange Act against the officers named in the Amended Complaint, claiming that the defendants made material misstatements and omissions regarding, among other things, the Company's growth and consumer demand for certain of the Company's products. The class period identified in the Amended Complaint is September 16, 2015 through January 30, 2017. The Amended Complaint also asserted claims under Sections 11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”), in connection with the Company’s public offering of senior unsecured notes in June 2016. The Securities Act claims were asserted against the Company, Mr. Plank, Mr. Molloy, the Company’s directors who signed the registration statement pursuant to which the offering was made and the underwriters that participated in the offering. The Amended Complaint alleged that the offering materials utilized in connection with the offering contained false and/or misleading statements and omissions regarding, among other things, the Company’s growth and consumer demand for certain of the Company’s products.
On November 9, 2017, the Company and the other defendants filed motions to dismiss the Amended Complaint. On September 19, 2018, the District Court dismissed the Securities Act claims with prejudice and the Exchange Act claims without prejudice. The lead plaintiff filed a Second Amended Complaint on November 16, 2018, asserting claims under the Exchange Act and naming the Company and Mr. Plank as the remaining defendants. The remaining defendants filed a motion to dismiss the Second Amended Complaint on January 17, 2019. On August 19, 2019, the District Court dismissed the Second Amended Complaint with prejudice.
In September 2019, plaintiffs filed an appeal in the United States Court of Appeals for the Fourth Circuit challenging the decisions by the District Court on September 19, 2018 and August 19, 2019 (the “Appeal”). The Appeal was fully briefed as of January 16, 2020. On November 18, 2019, before briefing on the Appeal was complete, the lead plaintiff filed in the District Court a motion for an indicative ruling under Federal Rule of Civil Procedure 62.1 (the “Rule 62.1 Motion”) seeking relief from the final judgment pursuant to Federal Rule of Civil Procedure 60(b). The Rule 62.1 Motion alleged that purported newly discovered evidence entitled the lead plaintiff to relief from the District Court’s final judgment. On January 22, 2020, the District Court granted the Rule 62.1 motion and indicated that it would grant a motion for relief from the final judgment and provide the lead plaintiff with the opportunity to file a third amended complaint if the Fourth Circuit remands for that purpose. The District Court further stated that it would, upon remand, consolidate the matter with Patel v. Under Armour, Inc. and Waronker v. Under Armour Inc., described below, and appoint the lead plaintiff of In re Under Armour Securities Litigation as the lead plaintiff over the consolidated cases.
The Company continues to believe that the claims are without merit and intends to defend the lawsuit vigorously. However, because of the inherent uncertainty as to the outcome of this proceeding, the Company is unable at this time to estimate the possible impact of this matter.
Patel v. Under Armour, Inc. and Waronker v. Under Armour, Inc.
On November 6, 2019, a purported shareholder of the Company filed a securities case in the United States District Court for the District of Maryland against the Company and the Company’s then-Chief Executive Officer, Kevin Plank, Chief Financial Officer, David Bergman, and then-Chief Operating Officer, Patrik Frisk, as well as former Chief Financial Officer Lawrence Molloy (captioned Patel v. Under Armour, Inc., No 1:19-cv-03209-RDB). The complaint alleges violations of Section 10(b) (and Rule 10b-5) of the Exchange Act, against all defendants, and Section 20(a) control person liability under the Exchange Act against the current and former officers named in the complaint. The complaint claims that the defendants’ disclosures and statements supposedly misrepresented or omitted that the Company was purportedly shifting sales between quarterly periods allegedly to appear healthier and that the Company was under investigation by and cooperating with the United States Department of Justice and the United States Securities and Exchange Commission since July 2017. The class period identified in the complaint is August 3, 2016 through November 1, 2019, inclusive.
On December 17, 2019, a purported shareholder of the Company filed a securities case in the United States District Court for the District of Maryland against the Company, Mr. Plank, Mr. Bergman, Mr. Frisk, and two former Chief Financial Officers of the Company (captioned Waronker v. Under Armour, Inc., No. 1:19-cv-03581-RDB). Like the Patel complaint, the Waronker complaint alleges violations of Section 10(b) (and Rule 10b-5) of the
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Exchange Act, against all defendants, and Section 20(a) control person liability under the Exchange Act against the current and former officers named in the complaint. The complaint claims that the defendants’ disclosures and statements supposedly misrepresented or omitted that the Company was purportedly shifting sales between quarterly periods allegedly to appear healthier and that the Company was under investigation by and cooperating with the United States Department of Justice and the United States Securities and Exchange Commission since July 2017. The class period identified in the complaint is September 16, 2015 through November 1, 2019, inclusive.
The Court has not consolidated these cases or appointed a lead plaintiff and the Company has no pending deadline to respond to the complaint in either of these actions. As described above, the Court indicated in a January 22, 2020 decision in the In re Under Armour Securities Litigation case that it anticipated consolidating these cases with that matter and appointing the lead plaintiff in In re Under Armour Securities Litigation as the lead plaintiff over the consolidated cases, in the event that the Fourth Circuit remands the In re Under Armour Securities Litigation case.
The Company believes that the claims are without merit and intends to defend the lawsuits vigorously. However, because of the inherent uncertainty as to the outcome of these proceedings, the Company is unable at this time to estimate the possible impact of these matters.
Derivative Complaints
In June and July 2018, three purported stockholder derivative complaints were filed. Two of the complaints were filed in Maryland state court (in cases captioned Kenney v. Plank, et al. (filed June 29, 2018) and Luger v. Plank, et al. (filed July 26, 2018), respectively), and those cases were consolidated on October 19, 2018 under the caption Kenney v. Plank, et. al. The other complaint was filed in the United States District Court for the District of Maryland (in a case captioned Andersen v. Plank et al. (filed July 23, 2018)). The operative complaints in these cases name Mr. Plank, certain other members of the Company’s Board of Directors and certain former Company executives as defendants, and name the Company as a nominal defendant. The operative complaints include allegations similar to those in the In re Under Armour Securities Litigation matter discussed above that challenges, among other things, the Company’s disclosures related to growth and consumer demand for certain of the Company’s products and stock sales by certain individual defendants. The operative complaints in each of these cases assert breach of fiduciary duty and unjust enrichment claims against the individual defendants. These complaints seek damages on behalf of the Company and certain corporate governance related actions.
The operative complaint in the Kenney matter also makes allegations related to the Company’s purchase of certain parcels of land from entities controlled by Mr. Plank (through Sagamore Development Company, LLC (“Sagamore”)). Sagamore purchased the parcels in 2014. Its total investment in the parcels was approximately $72.0 million, which included the initial $35.0 million purchase price for the property, an additional $30.6 million to terminate a lease encumbering the property and approximately $6.4 million of development costs. As previously disclosed, in June 2016, the Company purchased the unencumbered parcels for $70.3 million in order to further expand the Company’s corporate headquarters to accommodate its growth needs. The Company negotiated a purchase price for the parcels that it determined represented the fair market value of the parcels and approximated the cost to the seller to purchase and develop the parcels. In connection with its evaluation of the potential purchase, the Company engaged an independent third-party to appraise the fair market value of the parcels, and the Audit Committee of the Company’s Board of Directors engaged its own independent appraisal firm to assess the parcels. The Audit Committee determined that the terms of the purchase were reasonable and fair, and the transaction was approved by the Audit Committee in accordance with the Company’s policy on transactions with related persons. The operative complaint asserts breach of fiduciary duty and corporate waste claims against the individual defendants in connection with the Company’s purchase of these parcels and a claim against Sagamore for supposedly aiding and abetting those alleged breaches.
Both actions are currently stayed. The Andersen action was stayed between December 2018 and August 2019 pursuant to a court order. In September 2019, pursuant to an agreement between the parties, the court in the Andersen action entered an order staying that case pending the resolution of the Appeal in In re Under Armour Securities Litigation. On March 29, 2019, the court in the consolidated Kenney action granted the Company’s and the defendants’ motion to stay that case pending the outcome of both the In re Under Armour Securities Litigation and an earlier-filed derivative action asserting similar claims relating to the Company’s purchase of parcels in Port Covington (which action has since been dismissed in its entirety).
Prior to the filing of the derivative complaints in Kenney v. Plank, et al., Luger v. Plank, et al., and Andersen v. Plank et al., each of the purported stockholders had sent the Company’s Board of Directors a letter demanding that the Company pursue claims similar to the claims asserted in the derivative complaints. Following an investigation, a majority of disinterested and independent directors of the Company determined that the claims should not be pursued by the Company and informed each of these purported stockholders of that determination.
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The Company believes that the claims asserted in the derivative complaints are without merit and intends to defend these matters vigorously. However, because of the inherent uncertainty as to the outcome of these proceedings, the Company is unable at this time to estimate the possible impact of the outcome of these matters.
Wells Notices
In addition to the Company’s material pending legal proceedings, as previously disclosed, in July 2020, the Company, as well as Kevin Plank and David Bergman (together, the “Executives”), received “Wells Notices” from the SEC relating to the Company’s disclosures covering the third quarter of 2015 through the period ending December 31, 2016, regarding the use of “pull forward” sales in connection with revenue during those quarters. The Wells Notices informed the Company that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company and each of the Executives that would allege certain violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 and certain rules promulgated thereunder. The Wells Notices delivered to the Executives also reference potential charges related to the Executives’ participation in the Company’s violations, as well as control person liability under the Exchange Act.
The potential relief to be sought referenced in the Wells Notices included an injunction, a cease-and-desist order, disgorgement, prejudgment interest, and civil monetary penalties, as well as, in the case of the Executives, a bar from serving as an officer or director of a public company. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law, and to date no legal proceedings have been brought against the Company or the Executives with respect to this matter. The Company and the Executives maintain that their actions were appropriate and intend to pursue the Wells Notice process, which will include the opportunity to respond to the SEC Staff’s position, and also expect to engage in a dialogue with the SEC Staff to work toward a resolution of this matter.
Data Incident
In 2018, an unauthorized third party acquired data associated with the Company's Connected Fitness users' accounts for the Company's MyFitnessPal application and website. The Company has faced consumer class action lawsuits associated with this incident and has received inquiries regarding the incident from certain government regulators and agencies. The Company does not currently consider these matters to be material and believes its insurance coverage will provide coverage should any significant expense arise.

9. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The fair value accounting guidance outlines a valuation framework, creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures, and prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Financial assets (liabilities) measured at fair value on a recurring basis are set forth in the table below:
June 30, 2020 December 31, 2019 June 30, 2019
(In thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Derivative foreign currency contracts (see Note 11) $ —    $ 18,796    $ —    $ —    $ (7,151)   $ —    $ —    $ 8,599    $ —   
TOLI policies held by the Rabbi Trust —    6,378    —    —    6,543    —    —    6,092    —   
Deferred Compensation Plan obligations —    (12,129)   —    —    (10,839)   —    —    (9,860)   —   
Fair values of the financial assets and liabilities listed above are determined using inputs that use as their basis readily observable market data that are actively quoted and are validated through external sources, including third-party pricing services and brokers. The foreign currency contracts represent unrealized gains and losses on
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derivative contracts, which is the net difference between the U.S. dollar value to be received or paid at the contracts’ settlement date and the U.S. dollar value of the foreign currency to be sold or purchased at the current market exchange rate. The fair value of the trust owned life insurance (“TOLI”) policies held by the Rabbi Trust are based on the cash-surrender value of the life insurance policies, which are invested primarily in mutual funds and a separately managed fixed income fund. These investments are initially made in the same funds and purchased in substantially the same amounts as the selected investments of participants in the Under Armour, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”), which represent the underlying liabilities to participants in the Deferred Compensation Plan. Liabilities under the Deferred Compensation Plan are recorded at amounts due to participants, based on the fair value of participants’ selected investments.
As of June 30, 2020, the fair value of the Company's Convertible Senior Notes was $569.0 million. As of June 30, 2020, December 31, 2019, and June 30, 2019, the fair value of the Company's Senior Notes was $530.1 million, $587.5 million and $567.2 million, respectively. The carrying value of the Company's other long term debt approximated its fair value as of June 30, 2020, December 31, 2019 and June 30, 2019. The fair value of long term debt is estimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets (Level 2).
Some assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These assets can include long-lived assets and goodwill that have been reduced to fair value when impaired. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.

10. Stock Based Compensation
Performance-Based Equity Compensation
The Company grants a combination of time-based and performance-based restricted stock units and stock options as part of its incentive compensation. Certain senior executives are eligible to receive performance-based awards. The Company did not grant any performance-based restricted stock units or stock options during the three or six months ended June 30, 2020. During 2019, the Company granted performance-based restricted stock units or stock options with vesting conditions tied to the achievement of revenue and operating income targets for 2019 and 2020. As of March 31, 2020, the Company deemed the achievement of these revenue and operating income targets improbable, accordingly, a reversal of $2.9 million of expense was recorded for the performance-based restricted stock units and stock options. No expense for these awards has been recorded during the three months ended June 30, 2020.

11. Risk Management and Derivatives
The Company is exposed to global market risks, including the effects of changes in foreign currency and interest rates. The Company uses derivative instruments to manage financial exposures that occur in the normal course of business and does not hold or issue derivatives for trading or speculative purposes.
The Company may elect to designate certain derivatives as hedging instruments under U.S. GAAP. The Company formally documents all relationships between designated hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking hedge transactions. This process includes linking all derivatives designated as hedges to forecasted cash flows and assessing, both at inception and on an ongoing basis, the effectiveness of the hedging relationships.
The Company's foreign exchange risk management program consists of designated cash flow hedges and undesignated hedges. As of June 30, 2020, the Company has hedge instruments, primarily for British Pound/U.S. Dollar, U.S. Dollar/Chinese Renminbi, U.S. Dollar/Canadian Dollar, Euro/U.S. Dollar, U.S. Dollar/Japanese Yen, and U.S. Dollar/Mexican Peso currency pairs. All derivatives are recognized on the unaudited consolidated balance sheets at fair value and classified based on the instrument’s maturity date.
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The following table presents the fair values of derivative instruments within the unaudited consolidated balance sheets. Refer to Note 9 for a discussion of the fair value measurements.
(In thousands) Balance Sheet Classification June 30, 2020 December 31, 2019 June 30, 2019
Derivatives designated as hedging instruments under ASC 815
Foreign currency contracts Other current assets $ 19,441    $ 4,040    $ 10,427   
Foreign currency contracts Other long term assets 1,709    24    694   
Interest rate swap contracts Other long term assets —    —    —   
Total derivative assets designated as hedging instruments $ 21,150    $ 4,064    $ 11,121   
Foreign currency contracts Other current liabilities $ 16    $ 8,772    $ 2,425   
Foreign currency contracts Other long term liabilities —    $ 2,443    $ 133   
Total derivative liabilities designated as hedging instruments $ 16    $ 11,215    $ 2,558