Quarterly Report (10-q)

Date : 11/08/2019 @ 9:09PM
Source : Edgar (US Regulatory)
Stock : Under Armour Inc (UAA)
Quote : 15.48  -0.56 (-3.49%) @ 1:00AM
After Hours
Last Trade
Last $ 15.41 ▼ -0.07 (-0.45%)

Quarterly Report (10-q)

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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 September 30, 2019
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-20190930_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 October 31, 2019 there were 188,201,612 shares of Class A Common Stock, 34,450,000 shares of Class B Convertible Common Stock and 228,913,746 Class C Common Stock outstanding.


UNDER ARMOUR, INC.
September 30, 2019
INDEX TO FORM 10-Q
 
PART I.
Item 1.

1

2

3
4

6
7
Item 2.
23
Item 3.
36
Item 4.
36
PART II.
Item 1.
37
Item 1A.
37
Item 6.
37
38



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
(In thousands, except share data)
September 30,
2019
December 31,
2018
September 30,
2018
Assets
Current assets
Cash and cash equivalents $ 416,603    $ 557,403    $ 168,682   
Accounts receivable, net 843,495    652,546    867,074   
Inventories 906,544    1,019,496    1,173,115   
Prepaid expenses and other current assets 292,447    364,183    378,159   
Total current assets 2,459,089    2,593,628    2,587,030   
Property and equipment, net 778,894    826,868    821,078   
Operating lease right-of-use assets 595,832    —    —   
Goodwill 541,798    546,494    551,208   
Intangible assets, net 37,811    41,793    43,792   
Deferred income taxes 90,860    112,420    86,436   
Other long term assets 129,481    123,819    137,625   
Total assets $ 4,633,765    $ 4,245,022    $ 4,227,169   
Liabilities and Stockholders’ Equity
Current liabilities
Revolving credit facility, current $ —    $ —    $ 75,000   
Accounts payable 483,627    560,884    499,467   
Accrued expenses 309,305    340,415    303,399   
Customer refund liabilities 209,785    301,421    303,457   
Operating lease liabilities 119,446    —    —   
Current maturities of long term debt —    25,000    25,000   
Other current liabilities 77,498    88,257    93,416   
Total current liabilities 1,199,661    1,315,977    1,299,739   
Long term debt, net of current maturities 591,995    703,834    703,455   
Operating lease liabilities, non-current 588,490    —    —   
Other long term liabilities 99,953    208,340    218,054   
Total liabilities 2,480,099    2,228,151    2,221,248   
Commitments and contingencies (See Note 6)
Stockholders’ equity
Class A Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of September 30, 2019, December 31, 2018 and September 30, 2018; 188,201,145 shares issued and outstanding as of September 30, 2019, 187,710,319 shares issued and outstanding as of December 31, 2018, and 187,611,121 shares issued and outstanding as of September 30, 2018.
62    62    62   
Class B Convertible Common Stock, $0.0003 1/3 par value; 34,450,000 shares authorized, issued and outstanding as of September 30, 2019, December 31, 2018 and September 30, 2018.
11    11    11   
Class C Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of September 30, 2019, December 31, 2018 and September 30, 2018; 228,881,215 shares issued and outstanding as of September 30, 2019, 226,421,963 shares issued and outstanding as of December 31, 2018, and 226,263,389 shares issued and outstanding as of September 30, 2018.
76    75    75   
Additional paid-in capital 960,451    916,628    915,449   
Retained earnings 1,242,437    1,139,082    1,134,684   
Accumulated other comprehensive loss (49,371)   (38,987)   (44,360)  
Total stockholders’ equity 2,153,666    2,016,871    2,005,921   
Total liabilities and stockholders’ equity $ 4,633,765    $ 4,245,022    $ 4,227,169   
See accompanying notes.
1

Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(In thousands, except per share amounts)
 
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
Net revenues $ 1,429,456    $ 1,442,976    $ 3,825,907    $ 3,803,205   
Cost of goods sold 739,558    777,769    2,036,901    2,087,961   
Gross profit 689,898    665,207    1,789,006    1,715,244   
Selling, general and administrative expenses 550,978    527,640    1,626,309    1,594,893   
Restructuring and impairment charges —    18,601    —    134,920   
Income (loss) from operations 138,920    118,966    162,697    (14,569)  
Interest expense, net (5,655)   (9,151)   (15,881)   (26,266)  
Other expense, net (429)   (4,294)   (2,224)   (9,475)  
Income (loss) before income taxes 132,836    105,521    144,592    (50,310)  
Income tax expense 29,344    30,874    31,735    691   
Income (loss) from equity method investment (1,177)   619    (5,414)   481   
Net income (loss) $ 102,315    $ 75,266    $ 107,443    $ (50,520)  
Basic net income (loss) per share of Class A, B and C common stock $ 0.23    $ 0.17    $ 0.24    $ (0.11)  
Diluted net income (loss) per share of Class A, B and C common stock $ 0.23    $ 0.17    $ 0.24    $ (0.11)  
Weighted average common shares outstanding Class A, B and C common stock
Basic 451,385    447,070    450,739    444,931   
Diluted 454,695    451,035    454,047    444,931   
See accompanying notes.
2

Under Armour, Inc. and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
 
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
Net income (loss) $ 102,315    $ 75,266    $ 107,443    $ (50,520)  
Other comprehensive loss:
Foreign currency translation adjustment (12,111)   (1,042)   (4,713)   (16,861)  
Unrealized gain (loss) on cash flow hedge, net of tax benefit (expense) of ($2,520) and $731 for the three months ended September 30, 2019 and 2018, respectively, and $632 and ($5,362) for the nine months ended September 30, 2019 and 2018, respectively.
7,372    (1,658)   (1,338)   15,677   
Loss on intra-entity foreign currency transactions (5,140)   (3,171)   (4,333)   (4,965)  
Total other comprehensive loss (9,879)   (5,871)   (10,384)   (6,149)  
Comprehensive income (loss) $ 92,436    $ 69,395    $ 97,059    $ (56,669)  
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 June 30, 2018 186,051    $ 62    34,450    $ 11    224,382    $ 75    $ 901,851    $ 1,060,402    $ (38,489)   $ 1,923,912   
Exercise of stock options 34    —    —    —    143    —    406    —    —    406   
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements —    —    —    (50)   —    —    (984)   —    (984)  
Issuance of Class A Common Stock, net of forfeitures 1,526    —    —    —    —    —    —    —    —    —   
Issuance of Class C Common Stock, net of forfeitures —    —    —    —    1,788    —    1,420    —    —    1,420   
Stock-based compensation expense —    —    —    —    —    —    11,772    —    —    11,772   
Comprehensive loss —    —    —    —    —    —    —    75,266    (5,871)   69,395   
Balance as of September 30, 2018 187,611    $ 62    34,450    $ 11    226,263    $ 75    $ 915,449    $ 1,134,684    $ (44,360)   $ 2,005,921   
Balance as of December 31, 2017 185,257    $ 61    34,450    $ 11    222,375    $ 74    $ 872,266    $ 1,184,441    $ (38,211)   $ 2,018,642   
Exercise of stock options 481      —    —    601    —    6,317    —    —    6,318   
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements (23)   —    —    —    (134)   —    —    (2,744)   —    (2,744)  
Issuance of Class A Common Stock, net of forfeitures 1,896    —    —    —    —    —    —    —    —    —   
Issuance of Class C Common Stock, net of forfeitures —    —    —    —    3,421      4,419    —    —    4,420   
Impact of adoption of accounting standard updates —    —    —    —    —    —    —    3,507    —    3,507   
Stock-based compensation expense —    —    —    —    —    —    32,447    —    —    32,447   
Comprehensive loss —    —    —    —    —    —    —    (50,520)   (6,149)   (56,669)  
Balance as of September 30, 2018 187,611    $ 62    34,450    $ 11    226,263    $ 75    $ 915,449    $ 1,134,684    $ (44,360)   $ 2,005,921   
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 June 30, 2019 188,144    $ 62    34,450    $ 11    228,653    $ 76    $ 946,488    $ 1,141,129    $ (39,492)   $ 2,048,274   
Exercise of stock options 40    —    —    —    34    —    265    —    —    265   
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements —    —    —    —    (59)   —    —    (1,007)   —    (1,007)  
Issuance of Class A Common Stock, net of forfeitures 17    —    —    —    —    —    —    —    —    —   
Issuance of Class C Common Stock, net of forfeitures —    —    —    —    253    —    1,285    —    —    1,285   
Stock-based compensation expense —    —    —    —    —    —    12,413    —    —    12,413   
Comprehensive income (loss) —    —    —    —    —    —    —    102,315    (9,879)   92,436   
Balance as of September 30, 2019 188,201    $ 62    34,450    $ 11    228,881    $ 76    $ 960,451    $ 1,242,437    $ (49,371)   $ 2,153,666   
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 355    —    —    —    271    —    1,638    —    —    1,638   
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements (15)   —    —    —    (217)   —    —    (4,088)   —    (4,088)  
Issuance of Class A Common Stock, net of forfeitures 151    —    —    —    —    —    —    —    —    —   
Issuance of Class C Common Stock, net of forfeitures —    —    —    —    2,405      4,137    —    —    4,138   
Stock-based compensation expense —    —    —    —    —    —    38,048    —    —    38,048   
Comprehensive income (loss) —    —    —    —    —    —    —    107,443    (10,384)   97,059   
Balance as of September 30, 2019 188,201    $ 62    34,450    $ 11    228,881    $ 76    $ 960,451    $ 1,242,437    $ (49,371)   $ 2,153,666   
See accompanying notes.
5

Under Armour, Inc. and Subsidiaries`
Unaudited Consolidated Statements of Cash Flows
(In thousands)
  Nine Months Ended September 30,
  2019 2018
Cash flows from operating activities
Net income (loss) $ 107,443    $ (50,520)  
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization 140,443    135,029   
Unrealized foreign currency exchange rate gain 12,885    9,350   
Loss on disposal of property and equipment 2,884    3,378   
Impairment charges —    9,930   
Amortization of bond premium 190    190   
Stock-based compensation 38,048    32,445   
Excess tax benefit (loss) from stock-based compensation arrangements —    (3)  
Deferred income taxes 23,827    (9,965)  
Changes in reserves and allowances (22,778)   (239,073)  
Changes in operating assets and liabilities:
Accounts receivable (187,585)   (23,846)  
Inventories 123,364    (30,390)  
Prepaid expenses and other assets 73,753    (97,519)  
Other non-current assets 5,939    (1,596)  
Accounts payable (67,336)   (37,353)  
Accrued expenses and other liabilities (52,466)   113,297   
Customer refund liability (88,710)   304,685   
Income taxes payable and receivable (7,433)   778   
Net cash provided by operating activities 102,468    118,817   
Cash flows from investing activities
Purchases of property and equipment (105,767)   (121,439)  
Sale of property and equipment —    11,285   
Purchases of other assets (1,273)   (4,861)  
Purchase of equity method investment —    (39,208)  
Net cash used in investing activities (107,040)   (154,223)  
Cash flows from financing activities
Proceeds from long term debt and revolving credit facility 25,000    465,000   
Payments on long term debt and revolving credit facility (162,817)   (580,000)  
Employee taxes paid for shares withheld for income taxes (4,088)   (2,743)  
Proceeds from exercise of stock options and other stock issuances 5,797    10,739   
Payments of debt financing costs (2,661)   (11)  
Other financing fees 77    306   
Net cash used in financing activities (138,692)   (106,709)  
Effect of exchange rate changes on cash, cash equivalents and restricted cash 4,809    520   
Net decrease in cash, cash equivalents and restricted cash (138,455)   (141,595)  
Cash, cash equivalents and restricted cash
Beginning of period 566,060    318,135   
End of period $ 427,605    $ 176,540   
Non-cash investing and financing activities
Change in accrual for property and equipment $ (15,620)   $ (26,566)  
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. Powered by one of the world's largest digitally connected fitness and wellness communities, the Company's innovative products and experiences are designed to help advance human performance, making all athletes better. 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. 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. The consolidated balance sheet as of December 31, 2018 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, 2018 (the “2018 Form 10-K”), which should be read in conjunction with these consolidated financial statements. The results for the three and nine months ended September 30, 2019, are not necessarily indicative of the results to be expected for the year ending December 31, 2019, or any other portions thereof.
During the second quarter of 2019, the Company recorded an adjustment related to prior periods to correct unrecorded consulting expenses incurred primarily in connection with the 2018 restructuring plan. Selling, general and administrative expenses for the nine months ended September 30, 2019 includes $5.5 million of expense that was understated in prior periods. The Company concluded that the error was not material to any prior or interim periods presented.
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.
(In thousands) September 30, 2019 December 31, 2018 September 30, 2018
Cash and cash equivalents $ 416,603    $ 557,403    $ 168,682   
Restricted cash 11,002    8,657    7,858   
Total Cash, cash equivalents and restricted cash $ 427,605    $ 566,060    $ 176,540   
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 retailers. Credit is extended based on an evaluation of each customer’s financial condition. One of the Company's customers accounted for 10% of accounts receivable as of September 30, 2019. None of the Company's customers accounted for more than 10% of accounts receivable as of December 31, 2018 and September 30, 2018, respectively. For the three and nine months ended September 30, 2019 and 2018, no customer accounted for more than 10% of the Company's net revenues.
Sale of Accounts Receivable
In 2018, the Company entered into agreements with two financial institutions to sell selected accounts receivable on a recurring, non-recourse basis. In 2019, the Company amended one agreement to reduce the facility
7

amount. Under each agreement, the Company may sell up to $140.0 million and $50.0 million, respectively, provided the accounts receivable of certain customers cannot be outstanding simultaneously with both institutions. Balances may remain outstanding at any point in time. 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 September 30, 2019, December 31, 2018 and September 30, 2018, no amounts remained outstanding. The funding fee charged by the financial institutions is included in the other income (expense), net line item in the consolidated statement of operations.
Allowance for Doubtful Accounts
As of September 30, 2019, December 31, 2018, and September 30, 2018, the allowance for doubtful accounts was $16.5 million, $22.2 million and $24.0 million, respectively.
Revenue Recognition
Net revenues consist of net sales, license and Connected Fitness revenue. Net sales are recognized upon transfer of control, including passage of title to the customer and transfer of risk of loss related to those goods. Payment is due in full when title is transferred. Transfer of title and risk of loss 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. In some instances, transfer of title and risk of loss takes place at the point of sale, for example, at the Company’s brand and factory house stores. The Company may also ship product directly from its supplier to the customer and recognize revenue when the product is delivered to and accepted by the customer. License revenue is primarily recognized based upon shipment of licensed products sold by the Company's licensees. Sales taxes imposed on the Company’s revenues from product sales are presented on a net basis on the consolidated statements of income, and therefore do not impact net revenues or costs of goods sold.
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 contractual obligations 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 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 September 30, 2019, December 31, 2018, and September 30, 2018, contract liabilities were $60.6 million, $55.0 million and $31.9 million, respectively.
For the three and nine months ended September 30, 2019, the Company recognized $9.2 million and $22.6 million of revenue that was previously included in contract liabilities as of December 31, 2018. For the three and nine months ended September 30, 2018, the Company recognized $4.5 million and $19.7 million of revenue that was previously included in contract liabilities as of December 31, 2017. 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.
Practical Expedients and Policy Elections
The Company has made a policy election to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than an additional promised service.
8

Additionally, the Company has elected not to disclose certain information related to unsatisfied performance obligations for subscriptions for its Connected Fitness applications as they have an original expected length of one year or less.
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 selling, general and administrative expenses and were $20.8 million and $24.2 million for the three months ended September 30, 2019 and 2018, respectively, and $63.0 million and $70.2 million for the nine months ended September 30, 2019 and 2018, respectively.
Equity Method Investment
In April 2018, the Company invested ¥4.2 billion or $39.2 million in exchange for an additional 10% common stock ownership in Dome Corporation ("Dome"), the Company's Japanese licensee. This additional investment brought the Company's total investment in Dome's common stock to 29.5%, from 19.5%. 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.
As of September 30, 2019, the carrying value of the Company’s total investment in Dome was $47.4 million. The Company's proportionate share of Dome's net assets exceeded its total investment by $63.8 million, which was determined at the time of the investment in April 2018, and is not amortized. For the three and nine months ended September 30, 2019 and 2018, the Company recorded the allocable share of Dome’s net income (loss) in its consolidated statements of operations and as an adjustment to the invested balance.
In addition to the investment in Dome, the Company has a license agreement with Dome. The Company recorded license revenues from Dome of $9.2 million and $9.2 million for the three months ended September 30, 2019 and 2018, respectively, and $20.9 million and $22.9 million for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, December 31, 2018, and September 30, 2018, the Company had $9.1 million, $13.1 million, and $9.0 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.

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.
Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Boards ("FASB") issued ASU 2016-13 - Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result 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 ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption is permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
Recently Adopted Accounting Standards
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, an update that amends and simplifies certain aspects of hedge accounting rules to increase transparency of the impact of risk management activities in the financial statements. The Company adopted this ASU on January 1, 2019. There was no material impact to the Company's consolidated financial statements.
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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the existing guidance for leases and will require recognition of operating leases with lease terms of more than twelve months and all financing leases on the balance sheet. For these leases, companies will record assets for the rights and liabilities for the obligations that are created by the leases. This ASU requires disclosures that provide qualitative and quantitative information for the lease assets and liabilities recorded in the financial statements. The Company adopted this ASU and related amendments on January 1, 2019, and has elected certain practical expedients permitted under the transition guidance. The Company elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and did not restate prior periods. As permitted, the Company did not reassess whether existing contracts are or contain leases, the lease classification for any existing leases, initial direct costs for any existing leases and whether existing land easements and rights of way, which were not previously accounted for as leases, are leases. The Company implemented a new lease system in connection with the adoption of this ASU. The Company has operating lease right-of-use assets of $595.8 million and operating lease liabilities of $707.9 million on the Company's unaudited consolidated balance sheets as of September 30, 2019. The difference between the operating lease right-of-use assets and operating lease liabilities primarily represents the existing deferred rent and tenant improvement allowance liabilities balance, resulting from historical straight-lining of operating leases, which were effectively reclassified upon adoption to reduce the measurement of the leased assets. There was no material impact to the consolidated statements of operations and no cumulative earnings effect adjustment upon adoption. Refer to Note 4 for a discussion of leases.

3. Restructuring and Impairment
As previously announced, in both 2017 and 2018, the Company's Board of Directors approved restructuring plans (the "2017 restructuring plan" and the "2018 restructuring plan") designed to more closely align its financial resources with the critical priorities of the business and optimize operations. All restructuring charges under the plans were incurred by December 31, 2018.
The summary of the costs incurred during the three and nine months ended September 30, 2018 in connection with the 2018 restructuring plan is as follows:
(In thousands) Three Months Ended
September 30, 2018
Nine Months Ended September 30, 2018
Costs recorded in cost of goods sold:
     Inventory write-offs $ 5,687    $ 19,101   
Total costs recorded in cost of goods sold 5,687    19,101   
Costs recorded in restructuring and impairment charges:
     Property and equipment impairment 271    12,235   
Employee related costs 8,110    8,110   
Other restructuring related costs 6,516    26,238   
Contract exit costs 3,704    88,337   
Total costs recorded in restructuring and impairment charges 18,601    134,920   
Total restructuring, impairment and restructuring related costs $ 24,288    $ 154,021   

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A summary of the activity in the restructuring reserve related to the Company's 2017 and 2018 restructuring plans is as follows:
(In thousands) Employee Related Costs Contract Exit Costs Other Restructuring Related Costs
Balance at January 1, 2019 $ 8,532    $ 71,356    $ 4,876   
Additions charged to expense —    —    —   
Cash payments charged against reserve (5,727)   (14,889)   (4,794)  
Reclassification to operating lease liabilities (1) —    (30,572)   —   
Changes in reserve estimate (961)   (301)   —   
Balance at September 30, 2019 $ 1,844    $ 25,594    $ 82   
(1) Certain restructuring reserves have been reclassified to operating lease liabilities on the unaudited consolidated balance sheets in connection with the adoption of ASU 2016-02.

4. Leases
The Company leases 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.
Right-of-use assets and lease liabilities are established on the unaudited consolidated balance sheets for leases with an expected term greater than one year. 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. Leases with an initial term of 12 months or less are not recorded on the unaudited consolidated balance sheets.
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 $37.6 million and $113.4 million for the three and nine months ended September 30, 2019, respectively, under non-cancelable operating lease agreements.
Variable lease payments primarily consist of payments dependent on sales in brand and factory house stores. Short-term and variable lease payments are recorded in selling, general, and administrative expenses and are not material. 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:
September 30, 2019
Weighted average remaining lease term (in years) 6.96
Weighted average discount rate 4.29  %
Supplemental cash flow and other information related to leases was as follows:
(In thousands) Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases $ 83,183   
Leased assets obtained in exchange for new operating lease liabilities 47,832   
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Maturities of lease liabilities are as follows:
(In thousands)
2019 $ 44,134   
2020 141,983   
2021 128,259   
2022 116,370   
2023 103,477   
2024 and thereafter 295,916   
Total lease payments $ 830,139   
Less: Interest 122,203   
Total present value of lease liabilities $ 707,936   
As of September 30, 2019, the Company has additional operating lease obligations that have not yet commenced of approximately $344.1 million, which are not reflected in the table above. These relate to retail store lease obligations commencing in 2020 with lease terms up to 15 years, and primarily relate to a flagship store.
The following is a schedule of future minimum lease payments for non-cancelable real property and equipment operating leases as of December 31, 2018, as well as significant operating lease agreements entered into during the period after December 31, 2018 through the date of the 2018 Form 10-K:
(In thousands)
2019 $ 142,648   
2020 148,171   
2021 154,440   
2022 141,276   
2023 128,027   
2024 and thereafter 699,262   
Total future minimum lease payments $ 1,413,824   

5. Long Term Debt
Credit Facility
On March 8, 2019, the Company entered into an amended and restated credit agreement by and among the Company, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, PNC Bank, National Association, as syndication agent and the other lenders and arrangers party thereto (the "credit agreement"), amending and restating the Company's prior credit agreement. The 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 $1.25 billion of borrowings, but no term loan borrowings, which were provided for under the prior credit agreement. As of September 30, 2019, there were no amounts outstanding under the revolving credit facility. As of December 31, 2018, there were no amounts outstanding under the revolving credit facility and $136.3 million of term loan borrowings outstanding. In January 2019, the Company prepaid the outstanding balance of $136.3 million on its term loans, without penalty.
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 $5.1 million of letters of credit outstanding as of September 30, 2019.
The credit agreement contains negative covenants that limit the Company's ability to engage in certain transactions, as well as financial covenants that require the Company to comply with specific consolidated leverage and interest coverage ratios. As of September 30, 2019, the Company was in compliance with these ratios. In addition, the credit agreement contains events of default that are customary for a facility of this nature, and includes a cross default provision whereby an event of default under other material indebtedness, as defined in the credit agreement, will be considered an event of default under the credit agreement.
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
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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 1.00% to 1.25% for adjusted LIBOR loans and 0.00% to 0.25% for alternate base rate loans. During the three months ended September 30, 2019, there were no borrowings under the revolving credit facility. The weighted average interest rate under the revolving credit facility borrowings was 3.3% during the three months ended September 30, 2018, and 3.6% and 3.0% for the nine months ended September 30, 2019 and 2018, respectively. During the three and nine months ended September 30, 2019, there were no borrowings under the outstanding term loan. The weighted average interest rate under the outstanding term loan was 3.3% and 3.1% during the three and nine months ended September 30, 2018, respectively. The Company pays a commitment fee on the average daily unused amount of the revolving credit facility and certain fees with respect to letters of credit. As of September 30, 2019, the commitment fee was 15.0 basis points. The Company incurred and deferred $3.5 million in financing costs in connection with the credit agreement.
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 “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 Notes at any time, or from time to time, at redemption prices described in the indenture governing the Notes. The indenture governing the 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 Notes.
Other Long Term Debt
In December 2012, the Company entered into a $50.0 million recourse loan collateralized by the land, buildings and tenant improvements comprising the Company's corporate headquarters. In July 2018, this loan was paid in full, without penalties, using borrowings under the Company's revolving credit facility.
Interest expense, net, was $5.7 million and $9.2 million for the three months ended September 30, 2019 and 2018, respectively, and $15.9 million and $26.3 million for the nine months ended September 30, 2019 and 2018, respectively. Interest expense includes the 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.
6. Commitments and Contingencies
There were no significant changes to the contractual obligations reported in the 2018 Form 10-K other than those which occur in the normal course of business.
In connection with various contracts and agreements, the Company has agreed to indemnify counterparties against certain third party claims relating to the infringement of intellectual property rights and other items. Generally, such indemnification obligations do not apply in situations in which the counterparties are grossly negligent, engage in willful misconduct, or act in bad faith. Based on the Company’s historical experience and the estimated probability of future loss, the Company has determined that the fair value of such indemnifications is not material to its consolidated financial position or results of operations.
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.
Securities Class Action
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
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Employees Retirement Fund, filed a consolidated amended complaint (the “Amended Complaint”) against the Company, the Company’s Chief Executive Officer and former Chief Financial Officers Lawrence Molloy and Brad Dickerson. The Amended Complaint alleges 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 asserts 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 are asserted against the Company, the Company’s Chief Executive Officer, 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 alleges 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, the lead plaintiff in the Consolidated Action 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"). Briefing in connection with the Appeal is expected to be completed by the end of 2019. The Company continues to believe that the claims asserted in the Consolidated Action and the Appeal 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 the outcome of this matter.
Patel 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 Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer, as well as a former Chief Financial Officer of the Company (captioned Kirtan 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.
The Company has not yet been served with the complaint. The Company believes that the claims are without merit and, once served, 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.
Derivative Complaints
In April 2018, two purported stockholders filed separate stockholder derivative complaints in the United States District Court for the District of Maryland. These were brought against Kevin Plank (the Company’s Chairman and Chief Executive Officer) and certain other members of the Company’s Board of Directors and name the Company as a nominal defendant. The complaints make allegations related to the Company’s purchase of certain parcels of land from entities controlled by Mr. Plank (through Sagamore Development Company, LLC (“Sagamore”)), as well as other related party transactions.
Sagamore purchased these 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
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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.
On March 20, 2019, these cases were consolidated under the caption In re Under Armour, Inc. Shareholder Derivative Litigation and a lead plaintiff was appointed by the court. On May 1, 2019, the lead plaintiff filed a consolidated derivative complaint asserting that Mr. Plank and the director defendants breached their fiduciary duties in connection with the purchase of the parcels and other related party transactions and that Sagamore aided and abetted the alleged breaches of fiduciary duty by the other defendants in connection with Sagamore’s alleged role in the sale of the parcels to the Company. The consolidated complaint also asserts an unjust enrichment claim against Mr. Plank and Sagamore. It seeks damages on behalf of the Company and certain corporate governance related actions. The Company and the defendants filed a motion to dismiss the consolidated complaint on July 2, 2019, which is currently pending.
In June and July 2018, three additional 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. The operative complaint in the Kenney matter also makes allegations similar to those in the consolidated complaint in the In re Under Armour, Inc. Shareholder Derivative Litigation matter discussed above regarding the Company’s purchase of parcels from entities controlled by Mr. Plank through Sagamore and asserts a claim of corporate waste against the individual defendants. These complaints seek similar remedies to the remedies sought in the In re Under Armour, Inc. Shareholder Derivative Litigation complaint.
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. 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 the In re Under Armour, Inc. Shareholder Derivative Litigation matters.
Prior to the filing of the derivative complaints discussed above, each of the purported stockholders had sent the Company 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. 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.
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. Consumer class action lawsuits in connection with this incident remain pending, and the Company 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.
7. 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
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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:
September 30, 2019 December 31, 2018 September 30, 2018
(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 9) $ —    $ 18,695    $ —    $ —    $ 19,531    $ —    $ —    $ 11,592    $ —   
Interest rate swap contracts (see Note 9) —    —    —    —    1,567    —    —    2,577    —   
TOLI policies held by the Rabbi Trust —    6,139    —    —    5,328    —    —    6,026    —   
Deferred Compensation Plan obligations —    (10,269)   —    —    (6,958)   —    —    (8,339)   —   
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 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 interest rate swap contracts represent gains and losses on the derivative contracts, which is the net difference between the fixed interest to be paid and variable interest to be received over the term of the contract based on current market rates. 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 September 30, 2019, December 31, 2018, and September 30, 2018, the fair value of the Company's Senior Notes was $579.7 million, $500.1 million and $529.7 million, respectively. The carrying value of the Company's other long term debt approximated its fair value as of September 30, 2019, December 31, 2018 and September 30, 2018. 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.
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8. 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. During the nine months ended September 30, 2019, 0.6 million performance-based restricted stock units and 0.2 million performance-based stock options for shares of the Company's Class C common stock were awarded under the Company's Third Amended and Restated 2005 Omnibus Long-Term Incentive Plan, as amended. The performance-based restricted stock units and stock options have weighted average grant date fair values of $19.39 and $8.70, respectively. Vesting conditions are tied to the achievement of revenue and operating income targets for 2019 and 2020, with possible achievement levels ranging from 25-200% of the target level based on performance (with no restricted stock units or stock options vesting if none of the performance targets are achieved). Upon the achievement of the targets, one third of the restricted stock units and stock options will vest each in February 2021, 2022 and 2023. The Company deemed the achievement of certain revenue and operating income targets for 2019 and 2020 probable during the nine months ended September 30, 2019. The Company assesses the probability of the achievement of the remaining revenue and operating income targets at the end of each reporting period and based on that assessment cumulative adjustments may be recorded in future periods.

9. 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 September 30, 2019, the Company has hedge instruments, primarily for U.S. Dollar/Chinese Renminbi, British Pound/U.S. Dollar, U.S. Dollar/Canadian Dollar, U.S. Dollar/Mexican Peso, Euro/U.S. Dollar, and U.S. Dollar/Korean Won currency pairs. All derivatives are recognized on the unaudited consolidated balance sheets at fair value and classified based on the instrument’s maturity date.
The following table presents the fair values of derivative instruments within the unaudited consolidated balance sheets. Refer to Note 7 for a discussion of the fair value measurements.
(In thousands) Balance Sheet Classification September 30, 2019 December 31, 2018 September 30, 2018
Derivatives designated as hedging instruments under ASC 815
Foreign currency contracts Other current assets    $ 18,866    $ 19,731    $ 13,532   
Foreign currency contracts Other long term assets    1,220    —    318   
Interest rate swap contracts Other long term assets    —    1,567    2,577   
Total derivative assets designated as hedging instruments $ 20,086    $ 21,298    $ 16,427   
Foreign currency contracts Other current liabilities    $ 1,260    $ 228    $ 1,709   
Foreign currency contracts Other long term liabilities    —    —    —   
Total derivative liabilities designated as hedging instruments $ 1,260    $ 228    $ 1,709   
Derivatives not designated as hedging instruments under ASC 815
Foreign currency contracts Other current assets    $ 1,393    $ 1,097    $ 773   
Total derivative assets not designated as hedging instruments $ 1,393    $ 1,097    $ 773   
Foreign currency contracts Other current liabilities    $ 2,794    $ 2,307    $ 3,141   
Total derivative liabilities not designated as hedging instruments $ 2,794    $ 2,307    $ 3,141   

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The following table presents the amounts in the unaudited consolidated statements of operations in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items.
Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands) Total Amount of Gain (Loss) on Cash Flow Hedge Activity Total Amount of Gain (Loss) on Cash Flow Hedge Activity Total Amount of Gain (Loss) on Cash Flow Hedge Activity Total Amount of Gain (Loss) on Cash Flow Hedge Activity
Net revenues $ 1,429,456    $ 6,125 $ 1,442,976 $ (46)   $ 3,825,907    $ 14,337 $ 3,803,205 $ (3,743)  
Cost of goods sold 739,558    1,317    777,769    321    2,036,901    3,525    2,087,961    (2,208)  
Interest expense, net (5,655)   (9)   (9,151)   133    (15,881)   1,607    (26,266)   191   
Other expense, net (429)   44    (4,294)   705    (2,224)   836    (9,475)   845   

The following tables present the amounts affecting the unaudited statements of comprehensive income (loss).
(In thousands) Balance as of
June 30, 2019
Amount of gain (loss) recognized in other comprehensive income (loss) on derivatives Amount of gain (loss) reclassified from other comprehensive income (loss) into income Balance as of
September 30, 2019
Derivatives designated as cash flow hedges
Foreign currency contracts 11,595    17,378    7,495    21,478   
Interest rate swaps (595)   —    (9)   (586)  
Total designated as cash flow hedges $ 11,000    $ 17,378    $ 7,486    $ 20,892   

(In thousands) Balance as of
December 31, 2018
Amount of gain (loss) recognized in other comprehensive income (loss) on derivatives Amount of gain (loss) reclassified from other comprehensive income (loss) into income Balance as of September 30, 2019
Derivatives designated as cash flow hedges
Foreign currency contracts 21,908    18,277    18,707    21,478   
Interest rate swaps 954    67    1,607    (586)  
Total designated as cash flow hedges $ 22,862    $ 18,344    $ 20,314    $ 20,892   

(In thousands) Balance as of
June 30, 2018
Amount of gain (loss) recognized in other comprehensive income (loss) on derivatives Amount of gain (loss) reclassified from other comprehensive income (loss) into income Balance as of
September 30, 2018
Derivatives designated as cash flow hedges
Foreign currency contracts 13,755    (1,580)   966    11,209   
Interest rate swaps 1,799    23    (132)   1,954   
Total designated as cash flow hedges $ 15,554    $ (1,557)   $ 834    $ 13,163   

(In thousands) Balance as of
December 31, 2017
Amount of gain (loss) recognized in other comprehensive income (loss) on derivatives Amount of gain (loss) reclassified from other comprehensive income (loss) into income Balance as of
September 30, 2018
Derivatives designated as cash flow hedges
Foreign currency contracts (8,312)   14,401    (5,120)   11,209   
Interest rate swaps 438    1,442    (75)   1,954   
Total designated as cash flow hedges $ (7,874)   $ 15,843    $ (5,195)   $ 13,163   
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The following table presents the amounts in the unaudited consolidated statements of operations in which the effects of undesignated derivative instruments are recorded and the effects of fair value hedge activity on these line items.
Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands) Total Amount of Gain (Loss) on Fair Value Hedge Activity Total Amount of Gain (Loss) on Fair Value Hedge Activity Total Amount of Gain (Loss) on Fair Value Hedge Activity Total Amount of Gain (Loss) on Fair Value Hedge Activity
Other expense, net $ (429)   $ (474)   $ (4,294)   $ (5,613)   $ (2,224)   $ (2,629)   $ (9,475)   $ (12,066)  

Cash Flow Hedges
The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions generated by its international subsidiaries in currencies other than their local currencies. These gains and losses are driven by non-functional currency generated revenue, non-functional currency inventory purchases, investments in U.S. Dollar denominated available-for-sale debt securities, and certain other intercompany transactions. The Company enters into foreign currency contracts to reduce the risk associated with the foreign currency exchange rate fluctuations on these transactions. Certain contracts are designated as cash flow hedges. As of September 30, 2019, the aggregate notional value of the Company's outstanding cash flow hedges was $568.3 million, with contract maturities ranging from one to eighteen months.
The Company may enter into long term debt arrangements with various lenders which bear a range of fixed and variable rates of interest. The nature and amount of the Company's long term debt can be expected to vary as a result of future business requirements, market conditions and other factors. The Company may elect to enter into interest rate swap contracts to reduce the impact associated with interest rate fluctuations. The interest rate swap contracts are accounted for as cash flow hedges. Refer to Note 5 for a discussion of long term debt. As of September 30, 2019, the Company had no outstanding interest rate swap contracts.
For foreign currency contracts designated as cash flow hedges, changes in fair value, excluding any ineffective portion, are recorded in other comprehensive income until net income is affected by the variability in cash flows of the hedged transaction. The effective portion is generally released to net income (loss) after the maturity of the related derivative and is classified in the same manner as the underlying exposure.
Undesignated Derivative Instruments
The Company may elect to enter into foreign exchange forward contracts to mitigate the change in fair value of specific assets and liabilities on the unaudited consolidated balance sheets. These undesignated instruments are recorded at fair value as a derivative asset or liability on the unaudited consolidated balance sheets with their corresponding change in fair value recognized in other expense, net, together with the re-measurement gain or loss from the hedged balance sheet position. As of September 30, 2019, the total notional value of the Company's outstanding undesignated derivative instruments was $454.0 million.
Credit Risk
The Company enters into derivative contracts with major financial institutions with investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the derivative contracts. However, the Company monitors the credit quality of these financial institutions and considers the risk of counterparty default to be minimal.
10. Provision for Income Taxes
Provision for Income Taxes
The effective rates for income taxes were 22.1% and 29.3% for the three months ended September 30, 2019 and 2018, respectively. The effective tax rate for the three months ended September 30, 2019 was lower than the effective tax rate for the three months ended September 30, 2018 primarily due to changes in the proportion of earnings taxed in the United States as a result of the 2018 Restructuring Plan, partially offset by discrete items as a percentage of the pre-tax results in each period.
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Valuation Allowance
The Company evaluates on a quarterly basis whether the deferred tax assets are realizable which requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company's deferred tax assets, which increase income tax expense in the period when such a determination is made.
As noted in the Company's Annual Report on Form 10-K, a significant portion of our deferred tax assets relate to U.S. federal and state taxing jurisdictions. Realization of these deferred tax assets is dependent on future U.S. pre-tax earnings. Due to the Company's challenged U.S. results in 2017 and 2018 the Company incurred significant pre-tax losses in these jurisdictions. The Company continues to believe, as of September 30, 2019, that the weight of the positive evidence outweighs the negative evidence, regarding the realization of the majority of the net deferred tax assets related to U.S. federal and state taxing jurisdictions. However, as of September 30, 2019 and consistent with prior periods, valuation allowances have been recorded against select U.S. State and foreign net operating losses.

11. Earnings per Share
The following represents a reconciliation from basic income (loss) per share to diluted income (loss) per share:
  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share amounts) 2019 2018 2019 2018
Numerator
Net income (loss) $ 102,315    $ 75,266    $ 107,443    $ (50,520)  
Denominator
Weighted average common shares outstanding Class A, B and C 451,385    447,070    450,739    444,931   
Effect of dilutive securities Class A, B, and C 3,310    3,965    3,308    —   
Weighted average common shares and dilutive securities outstanding Class A, B, and C 454,695    451,035    454,047    444,931   
Basic net income (loss) per share of Class A, B and C common stock $ 0.23    $ 0.17    $ 0.24    $ (0.11)