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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 December 31, 2022
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
______________________________________
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) 468-2512 |
(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 January 31, 2023 there were 188,704,488 shares of Class A Common Stock, 34,450,000 shares of Class B Convertible Common Stock and 220,434,032 shares of Class C Common Stock outstanding.
UNDER ARMOUR, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited; In thousands, except share data)
| | | | | | | | | | | |
| December 31, 2022 | | March 31, 2022 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 849,546 | | | $ | 1,009,139 | |
Accounts receivable, net (Note 3) | 700,544 | | | 702,197 | |
Inventories | 1,217,780 | | | 824,455 | |
Prepaid expenses and other current assets, net | 348,734 | | | 297,034 | |
Total current assets | 3,116,604 | | | 2,832,825 | |
Property and equipment, net (Note 4) | 655,612 | | | 601,365 | |
Operating lease right-of-use assets (Note 5) | 482,947 | | | 420,397 | |
Goodwill (Note 6) | 479,975 | | | 491,508 | |
Intangible assets, net (Note 7) | 9,198 | | | 10,580 | |
Deferred income taxes (Note 17) | 20,237 | | | 20,141 | |
Other long-term assets | 62,982 | | | 76,016 | |
Total assets | $ | 4,827,555 | | | $ | 4,452,832 | |
Liabilities and Stockholders' Equity | | | |
Current liabilities | | | |
Accounts payable | $ | 738,740 | | | $ | 560,331 | |
Accrued expenses | 388,159 | | | 317,963 | |
Customer refund liabilities (Note 11) | 172,190 | | | 159,628 | |
Operating lease liabilities (Note 5) | 137,310 | | | 134,833 | |
Other current liabilities | 65,730 | | | 125,840 | |
Total current liabilities | 1,502,129 | | | 1,298,595 | |
Long term debt, net of current maturities (Note 8) | 673,930 | | | 672,286 | |
Operating lease liabilities, non-current (Note 5) | 707,905 | | | 668,983 | |
Other long-term liabilities | 111,589 | | | 84,014 | |
Total liabilities | 2,995,553 | | | 2,723,878 | |
Stockholders' equity (Note 10) | | | |
Class A Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of December 31, 2022 and March 31, 2022; 188,688,981 shares issued and outstanding as of December 31, 2022 (March 31, 2022: 188,668,560) | 63 | | | 63 | |
Class B Convertible Common Stock, $0.0003 1/3 par value; 34,450,000 shares authorized, issued and outstanding as of December 31, 2022 and March 31, 2022 | 11 | | | 11 | |
Class C Common Stock, $0.0003 1/3 par value; 400,000,000 shares authorized as of December 31, 2022 and March 31, 2022; 221,435,846 shares issued and outstanding as of December 31, 2022 (March 31, 2022: 238,472,217) | 73 | | | 79 | |
Additional paid-in capital | 1,118,529 | | | 1,046,961 | |
Retained earnings | 772,891 | | | 721,926 | |
Accumulated other comprehensive income (loss) | (59,565) | | | (40,086) | |
Total stockholders' equity | 1,832,002 | | | 1,728,954 | |
Total liabilities and stockholders' equity | $ | 4,827,555 | | | $ | 4,452,832 | |
Commitments and Contingencies (Note 9)
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited; In thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net revenues | $ | 1,581,781 | | | $ | 1,529,205 | | | $ | 4,504,723 | | | $ | 4,426,271 | |
Cost of goods sold | 883,376 | | | 753,272 | | | 2,462,287 | | | 2,193,413 | |
Gross profit | 698,405 | | | 775,933 | | | 2,042,436 | | | 2,232,858 | |
Selling, general and administrative expenses | 603,746 | | | 675,666 | | | 1,793,884 | | | 1,820,053 | |
Restructuring and impairment charges | — | | | 14,136 | | | — | | | 33,405 | |
Income (loss) from operations | 94,659 | | | 86,131 | | | 248,552 | | | 379,400 | |
Interest income (expense), net | (1,615) | | | (7,595) | | | (11,175) | | | (30,163) | |
Other income (expense), net | 47,312 | | | 24,037 | | | 27,300 | | | (43,933) | |
Income (loss) before income taxes | 140,356 | | | 102,573 | | | 264,677 | | | 305,304 | |
Income tax expense (benefit) | 18,811 | | | (6,798) | | | 46,719 | | | 22,191 | |
Income (loss) from equity method investments | 72 | | | 286 | | | (1,734) | | | (805) | |
Net income (loss) | $ | 121,617 | | | $ | 109,657 | | | $ | 216,224 | | | $ | 282,308 | |
| | | | | | | |
Basic net income (loss) per share of Class A, B and C common stock (Note 18) | $ | 0.27 | | | $ | 0.23 | | | $ | 0.48 | | | $ | 0.60 | |
Diluted net income (loss) per share of Class A, B and C common stock (Note 18) | $ | 0.27 | | | $ | 0.23 | | | $ | 0.47 | | | $ | 0.60 | |
| | | | | | | |
Weighted average common shares outstanding Class A, B and C common stock | | | | | | | |
Basic | 448,833 | | | 476,178 | | | 453,840 | | | 468,627 | |
Diluted | 458,990 | | | 479,728 | | | 463,750 | | | 471,743 | |
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited; In thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) | $ | 121,617 | | | $ | 109,657 | | | $ | 216,224 | | | $ | 282,308 | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustment | 16,433 | | | (9,449) | | | (24,066) | | | (9,870) | |
Unrealized gain (loss) on cash flow hedges, net of tax benefit (expense) of $18,689 and $(298) for the three months ended December 31, 2022 and 2021, respectively, and $(1,397) and $(4,492) for the nine months ended December 31, 2022 and 2021, respectively. | (66,541) | | | (1,918) | | | 25,353 | | | 9,805 | |
Gain (loss) on intra-entity foreign currency transactions | 8,778 | | | 1,686 | | | (20,766) | | | 2,039 | |
Total other comprehensive income (loss) | (41,330) | | | (9,681) | | | (19,479) | | | 1,974 | |
Comprehensive income (loss) | $ | 80,287 | | | $ | 99,976 | | | $ | 196,745 | | | $ | 284,282 | |
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited; 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 September 30, 2021 | 188,645 | | | $ | 63 | | | 34,450 | | | $ | 11 | | | 252,992 | | | $ | 84 | | | $ | 1,096,856 | | | $ | 918,664 | | | $ | (37,929) | | | $ | 1,977,749 | |
| | | | | | | | | | | | | | | | | | | |
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (488) | | | — | | | (488) | |
Issuance of Class A Common Stock, net of forfeitures | 6 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of Class C Common Stock, net of forfeitures | — | | | — | | | — | | | — | | | 169 | | | — | | | 915 | | | — | | | — | | | 915 | |
Stock-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 10,842 | | | — | | | — | | | 10,842 | |
Comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 109,657 | | | (9,681) | | | 99,976 | |
Balance as of December 31, 2021 | 188,651 | | | $ | 63 | | | 34,450 | | | $ | 11 | | | 253,161 | | | $ | 84 | | | $ | 1,108,613 | | | $ | 1,027,833 | | | $ | (47,610) | | | $ | 2,088,994 | |
| | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2021 | 188,622 | | | $ | 62 | | | 34,450 | | | $ | 11 | | | 233,935 | | | $ | 78 | | | $ | 1,072,401 | | | $ | 747,231 | | | $ | (49,584) | | | $ | 1,770,199 | |
Exercise of stock options | 3 | | | — | | | — | | | — | | | 4 | | | — | | | 17 | | | — | | | — | | | 17 | |
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements | — | | | — | | | — | | | — | | | (63) | | | — | | | — | | | (1,706) | | | — | | | (1,706) | |
| | | | | | | | | | | | | | | | | | | |
Issuance of Class A Common Stock, net of forfeitures | 26 | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | |
Issuance of Class C Common Stock, net of forfeitures | — | | | — | | | — | | | — | | | 19,285 | | | 6 | | | 2,773 | | | — | | | — | | | 2,779 | |
Stock-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 33,422 | | | — | | | — | | | 33,422 | |
Comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 282,308 | | | 1,974 | | | 284,282 | |
Balance as of December 31, 2021 | 188,651 | | | $ | 63 | | | 34,450 | | | $ | 11 | | | 253,161 | | | $ | 84 | | | $ | 1,108,613 | | | $ | 1,027,833 | | | $ | (47,610) | | | $ | 2,088,994 | |
| | | | | | | | | | | | | | | | | | | |
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited; 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 September 30, 2022 | 188,689 | | | $ | 63 | | | 34,450 | | | $ | 11 | | | 229,012 | | | $ | 76 | | | $ | 1,118,093 | | | $ | 716,325 | | | $ | (18,235) | | | $ | 1,816,333 | |
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (66) | | | — | | | (66) | |
| | | | | | | | | | | | | | | | | | | |
Class C Common Stock repurchased | — | | | — | | | — | | | — | | | (7,762) | | | (3) | | | (10,012) | | | (64,985) | | | — | | | (75,000) | |
Issuance of Class C Common Stock, net of forfeitures | — | | | — | | | — | | | — | | | 186 | | | — | | | 794 | | | — | | | — | | | 794 | |
Stock-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 9,654 | | | — | | | — | | | 9,654 | |
Comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 121,617 | | | (41,330) | | | 80,287 | |
Balance as of December 31, 2022 | 188,689 | | | $ | 63 | | | 34,450 | | | $ | 11 | | | 221,436 | | | $ | 73 | | | $ | 1,118,529 | | | $ | 772,891 | | | $ | (59,565) | | | $ | 1,832,002 | |
| | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2022 | 188,669 | | | $ | 63 | | | 34,450 | | | $ | 11 | | | 238,472 | | | $ | 79 | | | $ | 1,046,961 | | | $ | 721,926 | | | $ | (40,086) | | | $ | 1,728,954 | |
Shares withheld in consideration of employee tax obligations relative to stock-based compensation arrangements | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (868) | | | — | | | (868) | |
Class C Common Stock repurchased | — | | | — | | | — | | | — | | | (17,675) | | | (6) | | | 39,397 | | | (164,391) | | | — | | | (125,000) | |
Issuance of Class A Common Stock, net of forfeitures | 20 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of Class C Common Stock, net of forfeitures | — | | | — | | | — | | | — | | | 639 | | | — | | | 2,809 | | | — | | | — | | | 2,809 | |
Stock-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 29,362 | | | — | | | — | | | 29,362 | |
Comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 216,224 | | | (19,479) | | | 196,745 | |
Balance as of December 31, 2022 | 188,689 | | | $ | 63 | | | 34,450 | | | $ | 11 | | | 221,436 | | | $ | 73 | | | $ | 1,118,529 | | | $ | 772,891 | | | $ | (59,565) | | | $ | 1,832,002 | |
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited; In thousands)
| | | | | | | | | | | |
| Nine Months Ended December 31, |
| 2022 | | 2021 |
Cash flows from operating activities | | | |
Net income (loss) | $ | 216,224 | | | $ | 282,308 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | | | |
Depreciation and amortization | 102,656 | | | 105,632 | |
Unrealized foreign currency exchange rate (gain) loss | (19,424) | | | 4,175 | |
Loss on extinguishment of senior convertible notes | — | | | 58,526 | |
Loss on disposal of property and equipment | 1,411 | | | 3,893 | |
Non-cash restructuring and impairment charges | — | | | 21,337 | |
Amortization of bond premium and debt issuance costs | 1,644 | | | 11,618 | |
Stock-based compensation | 29,362 | | | 33,422 | |
Deferred income taxes | (132) | | | (2,633) | |
Changes in reserves and allowances | 7,316 | | | (16,504) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 1,026 | | | 139,340 | |
Inventories | (401,551) | | | 44,041 | |
Prepaid expenses and other assets | (68,931) | | | (12,071) | |
Other non-current assets | (46,272) | | | 60,315 | |
Accounts payable | 168,681 | | | 106,119 | |
Accrued expenses and other liabilities | 50,892 | | | 7,047 | |
Customer refund liability | 12,440 | | | (27,912) | |
Income taxes payable and receivable | 19,057 | | | (3,236) | |
Net cash provided by (used in) operating activities | 74,399 | | | 815,417 | |
Cash flows from investing activities | | | |
Purchases of property and equipment | (147,620) | | | (61,294) | |
Sale of property and equipment | — | | | 852 | |
Earn-out from the sale of MyFitnessPal platform | 35,000 | | | — | |
Net cash provided by (used in) investing activities | (112,620) | | | (60,442) | |
Cash flows from financing activities | | | |
Payments on long-term debt and revolving credit facility | — | | | (506,280) | |
Proceeds from capped call | — | | | 91,722 | |
Common shares repurchased | (125,000) | | | — | |
Employee taxes paid for shares withheld for income taxes | (868) | | | (1,682) | |
Proceeds from exercise of stock options and other stock issuances | 2,809 | | | 2,830 | |
Payments of debt financing costs | — | | | (1,884) | |
Net cash provided by (used in) financing activities | (123,059) | | | (415,294) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 3,205 | | | (16,491) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | (158,075) | | | 323,190 | |
Cash, cash equivalents and restricted cash | | | |
Beginning of period | 1,022,126 | | | 1,359,680 | |
End of period | $ | 864,051 | | | $ | 1,682,870 | |
| | | |
Non-cash investing and financing activities | | | |
Change in accrual for property and equipment | $ | (706) | | | $ | 20,640 | |
| | | | | | | | | | | |
Reconciliation of cash, cash equivalents and restricted cash | December 31, 2022 | | December 31, 2021 |
Cash and cash equivalents | $ | 849,546 | | | $ | 1,669,453 | |
Restricted cash | 14,505 | | | 13,417 | |
Total cash, cash equivalents and restricted cash | $ | 864,051 | | | $ | 1,682,870 | |
See accompanying notes.
Under Armour, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited; Tabular amounts in thousands, except share and per share data)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Business
Under Armour, Inc. (together with 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 make athletes better with a vision to inspire performance solutions you never knew you needed and can't imagine living without. The Company's products are made, sold and worn worldwide.
Fiscal Year End Change
As previously disclosed, the Company changed its fiscal year end from December 31 to March 31, effective for the fiscal year beginning April 1, 2022. The Company's current fiscal year will run from April 1, 2022 through March 31, 2023 (Fiscal 2023). Consequently, there was no Fiscal 2022.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements are presented in U.S. Dollars and include the accounts of Under Armour, Inc. and its wholly owned subsidiaries. Certain information in footnote disclosures normally included in annual financial statements were 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 presentation of the financial position and results of operations were included. Intercompany balances and transactions were eliminated upon consolidation.
The unaudited Condensed Consolidated Balance Sheet as of December 31, 2022 is derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ("Fiscal 2021"), filed with the SEC on February 23, 2022 ("Annual Report on Form 10-K for Fiscal 2021"), which should be read in conjunction with these unaudited Condensed Consolidated Financial Statements and the Company's Transition Report on Form 10-QT for the three months ended March 31, 2022, filed with the SEC on May 9, 2022. The unaudited results for the three and nine months ended December 31, 2022, are not necessarily indicative of the results to be expected for Fiscal 2023, or any other portions thereof.
Management Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. These estimates, judgments and assumptions are evaluated on an on-going basis. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable at that time; however, actual results could differ from these estimates.
As the impacts of major global events, including the COVID-19 pandemic, continue to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment. The extent to which the evolving events impact the Company's financial statements will depend on a number of factors including, but not limited to, any new information that may emerge concerning the severity of these major events and the actions that governments around the world may take in response. While the Company believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of this 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. Please see the risk factors discussed in Part I, Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for Fiscal 2021.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Account Pronouncements
The Company assesses the applicability and impact of all Accounting Standard Updates ("ASUs"). There were no ASUs adopted during the first nine months of Fiscal 2023.
Recently Issued Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board ("FASB") issued ASU 2022-04 "Liabilities - Supplier Finance Programs (Subtopic 405-50)" ("ASU 2022-04") which requires entities to disclose the key terms of supplier finance programs used in connection with the purchase of goods and services along with information about their obligations under these programs, including a rollforward of those obligations. ASU 2022-04, with the exception of the rollforward requirement, is effective for fiscal years beginning after December 15, 2022 and should be applied retrospectively to all periods for which a balance sheet is presented. The rollforward requirement is effective for fiscal years beginning after December 15, 2023 and should be applied prospectively. Early adoption is permitted. The Company is currently evaluating this ASU to determine the impact of adoption on its consolidated financial statements.
NOTE 3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company's allowance for doubtful accounts was established with information available as of December 31, 2022, including reasonable and supportable estimates of future risk. The following table illustrates the activity in the Company's allowance for doubtful accounts:
| | | | | | | | | | | |
| Allowance for doubtful accounts - within accounts receivable, net | | Allowance for doubtful accounts - within prepaid expenses and other current assets (1) |
Balance at March 31, 2022 | $ | 7,113 | | | $ | 7,029 | |
Increases (decreases) to costs and expenses | 790 | | | — | |
Write-offs, net of recoveries | (1,281) | | | (6,508) | |
Balance at December 31, 2022 | $ | 6,622 | | | $ | 521 | |
(1) Includes an allowance pertaining to a royalty receivable.
NOTE 4. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
| | | | | | | | | | | |
| As of December 31, 2022 | | As of March 31, 2022 |
Leasehold and tenant improvements | $ | 452,824 | | | $ | 461,394 | |
Furniture, fixtures and displays | 282,147 | | | 263,749 | |
Buildings | 48,632 | | | 48,382 | |
Software | 374,845 | | | 339,722 | |
Office equipment | 130,776 | | | 132,452 | |
Plant equipment | 178,189 | | | 178,188 | |
Land | 83,626 | | | 83,626 | |
Construction in progress (1) | 115,954 | | | 64,869 | |
Other | 19,770 | | | 5,751 | |
Subtotal property and equipment | 1,686,763 | | | 1,578,133 | |
Accumulated depreciation | (1,031,151) | | | (976,768) | |
Property and equipment, net | $ | 655,612 | | | $ | 601,365 | |
(1) Construction in progress primarily includes costs incurred for construction of corporate offices, software systems, leasehold improvements and in-store fixtures and displays not yet placed in use.
Depreciation expense related to property and equipment for the three and nine months ended December 31, 2022 was $34.2 million and $101.3 million, respectively (three and nine months ended December 31, 2021: $32.8 million and $105.3 million, respectively).
NOTE 5. LEASES
The Company enters into operating leases 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. Short-term lease payments were not material for the three and nine months ended December 31, 2022 and 2021.
Lease Costs and Other Information
The Company recognizes lease expense on a straight-line basis over the lease term.
The following table illustrates operating and variable lease costs, included in selling, general and administrative expenses within the Company's Condensed Consolidated Statements of Operations, for the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | Nine months ended December 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Operating lease costs | $ | 39,477 | | | $ | 35,992 | | | $ | 111,042 | | | $ | 108,030 | |
Variable lease costs | $ | 3,560 | | | $ | 4,090 | | | $ | 11,543 | | | $ | 13,195 | |
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.
The weighted average remaining lease term and discount rate for the periods indicated below were as follows: | | | | | | | | | | | |
| As of December 31, 2022 | | As of March 31, 2022 |
Weighted average remaining lease term (in years) | 8.12 | | 8.69 |
Weighted average discount rate | 4.51 | % | | 3.72 | % |
Supplemental Cash Flow Information
The following table presents supplemental information relating to cash flow arising from lease transactions: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended December 31, | | Nine months ended December 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
Operating cash outflows from operating leases | $ | 42,545 | | | $ | 42,356 | | | $ | 126,664 | | | $ | 131,482 | |
Leased assets obtained in exchange for new operating lease liabilities | $ | 32,804 | | | $ | 9,848 | | | $ | 140,364 | | | $ | 24,170 | |
Maturity of Lease Liabilities
The following table presents the future minimum lease payments under the Company's operating lease liabilities as of December 31, 2022: | | | | | |
Fiscal year ending March 31, |
2023 (three months ending) | $ | 38,262 | |
2024 | 173,175 | |
2025 | 153,843 | |
2026 | 121,400 | |
2027 | 101,632 | |
2028 and thereafter | 422,433 | |
Total lease payments | $ | 1,010,745 | |
Less: Interest | 165,530 | |
Total present value of lease liabilities | $ | 845,215 | |
As of December 31, 2022, the Company has additional operating lease obligations that have not yet commenced of approximately $13.4 million, which are not reflected in the table above.
NOTE 6. GOODWILL
The following table summarizes changes in the carrying amount of the Company's goodwill by reportable segment as of the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | EMEA | | Asia-Pacific | | Latin America | | Total |
Balance as of March 31, 2022 | $ | 301,371 | | | $ | 105,053 | | | $ | 85,084 | | | $ | — | | | $ | 491,508 | |
Effect of currency translation adjustment | — | | | (6,043) | | | (5,490) | | | — | | | (11,533) | |
Balance as of December 31, 2022 | $ | 301,371 | | | $ | 99,010 | | | $ | 79,594 | | | $ | — | | | $ | 479,975 | |
NOTE 7. INTANGIBLE ASSETS, NET
The following tables summarize the Company's intangible assets as of the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2022 |
| Useful Lives from Date of Acquisitions (in years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible assets subject to amortization: | | | | | | |
Technology | 5-7 | | $ | 2,536 | | | $ | (2,403) | | | $ | 133 | |
Customer relationships | 2-6 | | 8,642 | | | (3,998) | | | 4,644 | |
Lease-related intangible assets | 1-15 | | 1,581 | | | (1,439) | | | 142 | |
Other | 5-10 | | 475 | | | (463) | | | 12 | |
Total | | | $ | 13,234 | | | $ | (8,303) | | | $ | 4,931 | |
Indefinite-lived intangible assets | | | | | | | 4,267 | |
Intangible assets, net | | | | | | | $ | 9,198 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | As of March 31, 2022 |
| Useful Lives from Date of Acquisitions (in years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible assets subject to amortization: | | | | | | |
Technology | 5-7 | | $ | 2,536 | | | $ | (2,103) | | | $ | 433 | |
Customer relationships | 2-6 | | 8,552 | | | (2,893) | | | 5,659 | |
Lease-related intangible assets | 1-15 | | 9,112 | | | (8,892) | | | 220 | |
Other | 5-10 | | 475 | | | (427) | | | 48 | |
Total | | | $ | 20,675 | | | $ | (14,315) | | | $ | 6,360 | |
Indefinite-lived intangible assets | | | | | | | 4,220 | |
Intangible assets, net | | | | | | | $ | 10,580 | |
Amortization expense, which is included in selling, general and administrative expenses, for the three and nine months ended December 31, 2022 was $0.5 million and $1.4 million, respectively (three and nine months ended December 31, 2021: $0.5 million and $1.4 million, respectively).
During the three months ended December 31, 2022, the Company reduced the gross carrying amount and related accumulated amortization of certain of its lease-related intangible assets by $7.8 million as a result of such assets being fully amortized and no longer in use.
The following is the estimated amortization expense for the Company's intangible assets as of December 31, 2022: | | | | | |
Fiscal year ending March 31, |
2023 (three months ending) | $ | 499 | |
2024 | 1,541 | |
2025 | 1,502 | |
2026 | 1,380 | |
2027 | 9 | |
2028 and thereafter | — | |
Total amortization expense of intangible assets | $ | 4,931 | |
NOTE 8. CREDIT FACILITY AND OTHER LONG TERM DEBT
The Company's outstanding debt consisted of the following: | | | | | | | | | | | |
| As of December 31, 2022 | | As of March 31, 2022 |
1.50% Convertible Senior Notes due 2024 | $ | 80,919 | | | $ | 80,919 | |
3.25% Senior Notes due 2026 | 600,000 | | | 600,000 | |
Total principal payments due | 680,919 | | | 680,919 | |
| | | |
Unamortized debt discount on Senior Notes | (877) | | | (1,067) | |
Unamortized debt issuance costs - Convertible Senior Notes | (370) | | | (677) | |
Unamortized debt issuance costs - Senior Notes | (1,862) | | | (2,266) | |
Unamortized debt issuance costs - Credit facility | (3,880) | | | (4,623) | |
Total amount outstanding | 673,930 | | | 672,286 | |
Less: | | | |
Current portion of long-term debt: | | | |
Credit Facility borrowings | — | | | — | |
| | | |
Non-current portion of long-term debt | $ | 673,930 | | | $ | 672,286 | |
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, and the other lenders and arrangers party thereto (the "credit agreement"). In May 2020, May 2021 and December 2021, the Company entered into the first, second and third amendments to the credit agreement, respectively (the credit agreement as amended, the "amended credit agreement" or the "revolving credit facility"). The amended credit agreement provides for revolving credit commitments of $