Discus Under Armor's Responsible Wealth Creation (Are they healthy financially? Why/why not? What is their M&A and Strategic Alliance activity? Is this on Strategy?) Attach bibliography that includes works cited in full APA style for all reference materials you examined.

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________________________ Form 10-K ______________________________________________ (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012 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) 1020 Hull Street Baltimore, Maryland 21230 (Address of principal executive offices) (Zip Code) (I.R.S. Employer Identification No.) (410) 454-6428 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Class A Common Stock (Title of each class) New York Stock Exchange (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes No Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 or Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of \"large accelerated filer,\" \"accelerated filer,\" and \"smaller reporting company\" in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No As of June 30, 2012 , the last business day of our most recently completed second fiscal quarter, the aggregate market value of the registrant's Class A Common Stock held by non-affiliates was $ 3,682,610,640 . As of January 31, 2013 , there were 83,469,813 shares of Class A Common Stock and 21,300,000 shares of Class B Convertible Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of Under Armour, Inc.'s Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 2013 are incorporated by reference in Part III of this Form 10-K. Table of Contents UNDER ARMOUR, INC. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I. Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Business General Products Marketing and Promotion Sales and Distribution Seasonality Product Design and Development Sourcing, Manufacturing and Quality Assurance Inventory Management Intellectual Property Competition Employees Available Information Risk Factors Unresolved Staff Comments Properties Legal Proceedings Executive Officers of the Registrant Mine Safety Disclosures Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information 1 1 2 3 4 4 5 5 6 6 6 7 7 15 16 16 17 18 19 21 21 35 37 62 62 62 PART III. Item 10. Item 11. Item 12. Item 13. Item 14. PART IV. Item 15. SIGNATURES Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Exhibits and Financial Statement Schedules 63 63 63 63 63 64 67 Table of Contents PART I ITEM 1. BUSINESS General Our principal business activities are the development, marketing and distribution of branded performance apparel, footwear and accessories for men, women and youth. The brand's moisture-wicking fabrications are engineered in many designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. Our products are sold worldwide and are worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as by consumers with active lifestyles. Our net revenues are generated primarily from the wholesale distribution of our products to national, regional, independent and specialty retailers. We also generate net revenue from product licensing and from the sale of our products through our direct to consumer sales channel, which includes sales through our factory house and specialty stores and websites. A large majority of our products are sold in North America; however we believe that our products appeal to athletes and consumers with active lifestyles around the globe. Internationally, we sell our products in China and certain countries in Europe. A third party licensee sells our products in Japan and distributors sell our products in other foreign countries. We plan to continue to grow our business over the long term through increased sales of our apparel, footwear and accessories, expansion of our wholesale distribution, growth in our direct to consumer sales channel and expansion in international markets. Virtually all of our products are manufactured by unaffiliated manufacturers operating in 14 countries outside of the United States. We were incorporated as a Maryland corporation in 1996. As used in this report, the terms \"we,\" \"our,\" \"us,\" \"Under Armour\" and the \"Company\" refer to Under Armour, Inc. and its subsidiaries unless the context indicates otherwise. We have registered trademarks around the globe, including UNDER ARMOUR , HEATGEAR , COLDGEAR , ALLSEASONGEAR and the Under Armour UA Logo, and we have applied to register many other trademarks. This Annual Report on Form 10-K also contains additional trademarks and tradenames of our Company. All trademarks and tradenames appearing in this Annual Report on Form 10-K are the property of their respective holders. Products Our product offerings consist of apparel, footwear and accessories for men, women and youth. We market our products at multiple price levels and provide consumers with products that we believe are a superior alternative to traditional athletic products. In 2012 , sales of apparel, footwear and accessories represented 76% , 13% and 9% of net revenues, respectively. Licensing arrangements for the sale of our products represented the remaining 2% of net revenues. Refer to Note 16 to the Consolidated Financial Statements for net revenues by product. Apparel Our apparel is offered in a variety of styles and fits intended to enhance comfort and mobility, regulate body temperature and improve performance regardless of weather conditions. Our apparel is engineered to replace traditional non-performance fabrics in the world of athletics and fitness with performance alternatives designed and merchandised along gearlines. Our three gearlines are marketed to tell a very simple story about our highly technical products and extend across the sporting goods, outdoor and active lifestyle markets. We market our apparel for consumers to choose HEATGEAR when it is hot, COLDGEAR when it is cold and ALLSEASONGEAR between the extremes. Within each gearline our apparel comes in three primary fit types: compression (tight fit), fitted (athletic fit) and loose (relaxed). HEATGEAR is designed to be worn in warm to hot temperatures under equipment or as a single layer. Our first compression T-shirt was the original HEATGEAR product and remains one of our signature styles. While a sweatsoaked traditional non-performance T-shirt can weigh two to three pounds, HEATGEAR is engineered with a microfiber blend designed to wick moisture from the body which helps the body stay cool, dry and light. We offer HEATGEAR in a variety of tops and bottoms in a broad array of colors and styles for wear in the gym or outside in warm weather. Because athletes sweat in cold weather as well as in the heat, COLDGEAR is designed to wick moisture from the body while circulating body heat from hot spots to help maintain core body temperature. Our COLDGEAR apparel provides both dryness and warmth in a single light layer that can be worn beneath a jersey, uniform, protective gear or ski-vest, and our COLDGEAR outerwear products protect the athlete, as well as the coach and the fan from the outside in. Our COLDGEAR products generally sell at higher prices than our other gearlines. ALLSEASONGEAR is designed to be worn in between extreme temperatures and uses technical fabrics to keep the wearer cool and dry in warmer temperatures while preventing a chill in cooler temperatures. 1 Table of Contents Footwear We began offering footwear for men, women and youth in 2006, and each year we have expanded our footwear offerings. Our footwear offerings include football, baseball, lacrosse, softball and soccer cleats, slides, performance training footwear, running footwear, basketball footwear and hunting boots. Our footwear is light, breathable and built with performance attributes for athletes. Our footwear is designed with innovative technologies which provide stabilization, directional cushioning and moisture management engineered to maximize the athlete's comfort and control. Accessories Accessories includes the sale of headwear, bags and gloves. Our accessories include HEATGEAR and COLDGEAR technologies and are designed with advanced fabrications to provide the same level of performance as our other products. We also have agreements with our licensees to develop Under Armour accessories. Our product, marketing and sales teams are actively involved in all steps of the design process in order to maintain brand standards and consistency. During 2012 , our licensees offered socks, team uniforms, baby and kids' apparel, eyewear and inflatable footballs and basketballs that feature performance advantages and functionality similar to our other product offerings. License revenues generated from the sale of these accessories are included in our net revenues. Marketing and Promotion We currently focus on marketing and selling our products to consumers primarily for use in athletics, fitness, training and outdoor activities. We seek to drive consumer demand by building brand equity and awareness that our products deliver advantages that help athletes perform better. Sports Marketing Our marketing and promotion strategy begins with providing and selling our products to high-performing athletes and teams on the high school, collegiate and professional levels. We execute this strategy through outfitting agreements, professional and collegiate sponsorships, individual athlete agreements and by providing and selling our products directly to team equipment managers and to individual athletes. As a result, our products are seen on the field, giving them exposure to various consumer audiences through the internet, television, magazines and live at sporting events. This exposure to consumers helps us establish on-field authenticity as consumers can see our products being worn by high-performing athletes. We are the official outfitter of athletic teams in several high-profile collegiate conferences, and since 2006 we have been an official supplier of footwear to the National Football League (\"NFL\"). In 2010, we signed an agreement to become an official supplier of gloves to the NFL beginning in 2011 and we are the official combine scouting partner to the NFL with the right to sell combine training apparel beginning in 2012. In addition, in 2011 we became the Official Performance Footwear Supplier of Major League Baseball, as well as becoming a partner with the National Basketball Association (\"NBA\") which allows us to market our NBA athletes in game uniforms in connection with our basketball footwear starting with the 2011/2012 season. Internationally, we are providing and selling our products to European soccer and rugby teams. Beginning with the 2012 season, we provide the Tottenham Hotspur Football Club with performance apparel, including training wear and playing kit for the Club's First and Academy teams, together with replica product for the Club's supporters around the world. We're the official technical kit supplier to the Welsh Rugby Union and have exclusive retail rights on the replica products. We also seek to sponsor events to drive awareness and brand authenticity from a grassroots level. We host combines, camps and clinics for many sports at regional sites across the country for male and female athletes. These events, along with the products we make, are designed to help young athletes improve their training methods and their overall performance. We are also the title sponsor of a collection of high school All-America Games that create significant on-field product and brand exposure that contributes to our on-field authenticity. Media We feature our products in a variety of national digital, broadcast, out-of-home and print media outlets. We also utilize social marketing to engage consumers and promote conversation around our brand and our products. Retail Presentation The primary component of our retail marketing strategy is to increase and brand floor space dedicated to our products within our major retail accounts. The design and funding of Under Armour concept shops within our major retail accounts has 2 Table of Contents been a key initiative for securing prime floor space, educating the consumer and creating an exciting environment for the consumer to experience our brand. Under Armour concept shops enhance our brand's presentation within our major retail accounts with a shop-in-shop approach, using dedicated floor space exclusively for our products, including flooring, lighting, walls, displays and images. Sales and Distribution The majority of our sales are generated through wholesale channels which include national and regional sporting goods chains, independent and specialty retailers, department store chains, institutional athletic departments and leagues and teams. In addition, we sell our products to independent distributors in various countries where we generally do not have direct sales operations and through licensees. We also sell our products directly to consumers through our own network of specialty and factory house stores in our North American Operating Segment, and through our website operations in the United States, Canada and certain countries in Europe. These factory house stores serve an important role in our overall inventory management by allowing us to sell a significant portion of excess, discontinued and out-of-season products while maintaining the pricing integrity of our brand in our other distribution channels. Through our specialty stores, consumers experience our brand first-hand and have broader access to our performance products. In 2012 , sales through our wholesale, direct to consumer and licensing channels represented 69% , 29% and 2% of net revenues, respectively. We operate in four geographic segments: (1) North America, (2) Europe, the Middle East and Africa (\"EMEA\"), (3) Asia, and (4) Latin America. Each geographic segment operates predominantly in one industry: the design, development, marketing and distribution of performance apparel, footwear and accessories. While our international operating segments are currently not material and we combine them into other foreign countries for reporting purposes, we believe that the trend toward performance products is global. We plan to continue to introduce our products and simple merchandising story to athletes throughout the world. We are introducing our performance apparel, footwear and accessories in a manner consistent with our past brand-building strategy, including selling our products directly to teams and individual athletes in these markets, thereby providing us with product exposure to broad audiences of potential consumers. The following table presents net revenues by geographic distribution for each of the years ending December 31, 2012 , 2011 and 2010 : Year ended December 31, 2012 (In thousa Net Re nds) venues 2011 % of Net Re venues North America Othe r forei gn coun 108, tries 188 Total net revenues 2010 Net Re venues % of Net Re venues $ 1,726,733 5.9 $ 1,834,921 Net Re venues % of Net Revenues 94.1 1,383,346 93.9% 100.0 6.1 1,472,684 66,1 11 100.0% 89,3 38 $ 997,816 93.8% 6.2 $ 1,063,927 100.0% North America North America accounted for 94% of our net revenues for 2012 . We sell our branded apparel, footwear and accessories in North America through our wholesale and our own direct to consumer channels. In 2012 , our two largest customers were, in alphabetical order, Dick's Sporting Goods and The Sports Authority. These two customers accounted for a total of 22% of our total net revenues in 2012 , and one of these customers individually accounted for at least 10% of our net revenues in 2012 . Our direct to consumer sales are generated primarily through our specialty and factory house stores and websites. As of December 31, 2012 , we had 102 factory house stores in North America, of which the majority is located at outlet centers on the East Coast of the United States. In 2012, we opened our first factory house store in Canada. As of December 31, 2012 , we had 5 specialty stores in North America, located near Annapolis, Maryland, Chicago, Illinois, Boston, Massachusetts, Washington, D.C., and Vail, Colorado. Consumers can purchase our products directly from our e-commerce website, www.underarmour.com. In addition, we earn licensing income in North America based on our licensees' sale of socks, team uniforms, baby and kids' apparel, eyewear and inflatable footballs and basketballs, as well as the distribution of our products to college bookstores and golf pro shops. In order to maintain consistent quality and performance, we pre-approve all products manufactured and sold by our licensees, and our quality assurance team strives to ensure that the products meet the same quality and compliance standards as the products that we sell directly. We distribute the majority of our products sold to our North American wholesale customers and our own retail stores from distribution centers of approximately 703.6 thousand square feet that we lease and operate approximately 15 miles from our corporate headquarters in Baltimore, Maryland. In addition, we distribute our products in North America through a third3 Table of Contents party logistics provider with primary locations in California and in Florida. In late 2011, we began leasing a new distribution facility in California of approximately 1,197.0 thousand square feet which is also operated by this provider. The agreement with this provider continues until May 2023 . In some instances, we arrange to have products shipped from the independent factories that manufacture our products directly to customer-designated facilities. Other Foreign Countries Only 6% of our net revenues were generated outside of North America in 2012 . We believe the future success of our brand is dependent on developing our business outside of North America. EMEA We sell our apparel, footwear and accessories to approximately four thousand retail stores and through our websites in certain European countries. We also sell our apparel, footwear and accessories to independent distributors in various European countries where we do not have direct sales operations. In addition, we sell our branded products to soccer, running and golf clubs in the United Kingdom, soccer teams in France, Germany, Greece, Ireland, Italy, Spain and Sweden, as well as First Division Rugby clubs in France, Ireland, Italy and the United Kingdom. In 2012, we began selling the Tottenham Hotspur Football Club replica product for the Club's supporters around the world. We generally distribute our products to our retail customers and e-commerce consumers in EMEA through a thirdparty logistics provider based out of Venlo, The Netherlands. This agreement continues until April 2014. Asia Since 2002 we have had a license agreement with Dome Corporation, which produces, markets and sells our branded apparel, footwear and accessories in Japan. We are actively involved with this licensee to develop variations of our products for the different sizes, sports interests and preferences of the Japanese consumer. Our branded products are now sold in Japan to professional sports teams, including Omiya Ardija, a professional soccer club in Saitama, Japan, as well as baseball and other soccer teams, and to independent specialty stores and large sporting goods retailers. We made a cost-based minority investment in Dome Corporation in January 2011. We also sell our apparel, footwear and accessories to independent distributors in Australia and New Zealand where we do not have direct sales operations. As of December 31, 2012 , we had 2 specialty stores located in Shanghai, China. We generally distribute our products to our retail customers in Asia through a third-party logistics provider based out of Hong Kong. Latin America We sell to Latin American consumers through independent distributors in Latin American countries where we do not have direct sales operations. We generally distribute our products to these independent distributors through our distribution facilities in the United States. Seasonality Historically, we have recognized a significant portion of our income from operations in the last two quarters of the year, driven primarily by increased sales volume of our products during the fall selling season, reflecting our historical strength in fall sports, and the seasonality of our higher priced COLDGEAR line. The majority of our net revenues were generated during the last two quarters in each of 2012 , 2011 and 2010 , respectively. The level of our working capital generally reflects the seasonality and growth in our business. We generally expect inventory, accounts payable and certain accrued expenses to be higher in the second and third quarters in preparation for the fall selling season. Product Design and Development Our products are manufactured with technical fabrications produced by third parties and developed in collaboration with our product development team. This approach enables us to select and create superior, technically advanced fabrics, produced to our specifications, while focusing our product development efforts on design, fit, climate and product end use. We seek to regularly upgrade and improve our products with the latest in innovative technology while broadening our product offerings. Our goal, to deliver superior performance in all our products, provides our developers and licensees with a clear, overarching direction for the brand and helps them identify new opportunities to create performance products that meet 4 Table of Contents the changing needs of athletes. We design products with \"visible technology,\" utilizing color, texture and fabrication to enhance our customers' perception and understanding of product use and benefits. Our product development team works closely with our sports marketing and sales teams as well as professional and collegiate athletes to identify product trends and determine market needs. For example, these teams worked closely to identify the opportunity and market for our CHARGED COTTON products, which are made from natural cotton but perform like our synthetic products, drying faster and wicking away moisture from the body, and our Storm Fleece products with a unique, water-resistant finish that repels water, without stifling airflow. In 2012, in partnership with Swiss Company, Schoeller, we launched coldblack technology which repels heat created from the sun to keep the wearer cooler outside. Sourcing, Manufacturing and Quality Assurance Many of the specialty fabrics and other raw materials used in our products are technically advanced products developed by third parties and may be available, in the short term, from a limited number of sources. The fabric and other raw materials used to manufacture our products are sourced by our manufacturers from a limited number of suppliers pre-approved by us. In 2012 , approximately 50% to 55% of the fabric used in our products came from five suppliers. These fabric suppliers have locations in China, Malaysia, Mexico, Taiwan and Vietnam . We continue to seek new suppliers and believe, although there can be no assurance, that this concentration will decrease over time. The fabrics used by our suppliers and manufacturers are primarily synthetic fabrics and involve raw materials, including petroleum based products, that may be subject to price fluctuations and shortages. In 2011, we introduced CHARGED COTTON products which primarily use cotton fabrics that also may be subject to price fluctuations and shortages. Substantially all of our products are manufactured by unaffiliated manufacturers and, in 2012 , ten manufacturers produced approximately 49% of our products. In 2012 , our products were manufactured by 27 primary manufacturers, operating in 14 countries, with approximately 53% of our products manufactured in Asia , 19% in Central and South America , 18% in the Middle East and 8% in Mexico . All manufacturers are evaluated for quality systems, social compliance and financial strength by our quality assurance team prior to being selected and on an ongoing basis. Where appropriate, we strive to qualify multiple manufacturers for particular product types and fabrications. We also seek out vendors that can perform multiple manufacturing stages, such as procuring raw materials and providing finished products, which helps us to control our cost of goods sold. We enter into a variety of agreements with our manufacturers, including non-disclosure and confidentiality agreements, and we require that all of our manufacturers adhere to a code of conduct regarding quality of manufacturing and working conditions and other social concerns. We do not, however, have any long term agreements requiring us to utilize any manufacturer, and no manufacturer is required to produce our products in the long term. We have a subsidiary in Hong Kong to support our manufacturing, quality assurance and sourcing efforts for apparel and a subsidiary in Guangzhou, China to support our manufacturing, quality assurance and sourcing efforts for footwear and accessories. We also manufacture a limited number of apparel products on-premises in our quick turn, Special Make-Up Shop located at one of our distribution facilities in Maryland. Through this 17,000 square-foot shop, we are able to build and ship apparel products on tight deadlines for high-profile athletes, leagues and teams. While the apparel products manufactured in the quick turn, Special Make-Up Shop represent an immaterial portion of our total net revenues, we believe the facility helps us to provide superior service to select customers. Inventory Management Inventory management is important to the financial condition and operating results of our business. We manage our inventory levels based on any existing orders, anticipated sales and the rapid-delivery requirements of our customers. Our inventory strategy is focused on continuing to meet consumer demand while improving our inventory efficiency over the long term by putting systems and processes in place to improve our inventory management. These systems and processes are designed to improve our forecasting and supply planning capabilities. In addition to systems and processes, key areas of focus that we believe will enhance inventory performance are SKU rationalization, added discipline around the purchasing of product, production lead time reduction, and better planning and execution in selling of excess inventory through our factory house stores and other liquidation channels. Our practice, and the general practice in the apparel, footwear and accessory industries, is to offer retail customers the right to return defective or improperly shipped merchandise. As it relates to new product introductions, which can often require large initial launch shipments, we commence production before receiving orders for those products from time to time. This can affect our inventory levels as we build pre-launch quantities. 5 Table of Contents Intellectual Property We believe we own the internally developed material trademarks used in connection with the marketing, distribution and sale of all our products, both domestically and internationally, where our products are currently sold or manufactured. Our major trademarks include the UA Logo and UNDER ARMOUR , both of which are registered in the United States, Canada, Mexico, the European Union, Japan, China and several other foreign countries in which we sell or plan to sell our products. We also own trademark registrations for UA , ARMOUR , HEATGEAR , COLDGEAR , ALLSEASONGEAR , PROTECT THIS HOUSE , I WILL ,THE ADVANTAGE IS UNDENIABLE , ARMOUR BRA , MPZ , BOXERJOCK , RECHARGE , COMBINE , CHARGED COTTON , MICRO G and several other trademarks, including numerous trademarks that incorporate the term ARMOUR such as ARMOURBITE , ARMOURLOFT , ARMOURSTORM , ARMOUR FLEECE , BABY ARMOUR , and several others. In addition, we have applied to register numerous other trademarks including ARE YOU FROM HERE? TM , ARMOUR39 TM and COLDGEAR INFRARED TM . We also own domain names for our primary trademarks (most notably underarmour.com and ua.com) and hold copyright registrations for several commercials, as well as for certain artwork. We intend to continue to strategically register, both domestically and internationally, trademarks and copyrights we utilize today and those we develop in the future. We will continue to aggressively police our trademarks and pursue those who infringe, both domestically and internationally. We believe the distinctive trademarks we use in connection with our products are important in building our brand image and distinguishing our products from those of others. These trademarks are among our most valuable assets. In addition to our distinctive trademarks, we also place significant value on our trade dress, which is the overall image and appearance of our products, and we believe our trade dress helps to distinguish our products in the marketplace. The intellectual property rights in much of the technology, materials and processes used to manufacture our products are often owned or controlled by our suppliers. However, we seek to protect certain innovative products and features that we believe to be new, strategic and important to our business. In 2012 , we filed several patent applications in connection with certain of our products and designs that we believe offer a unique utility or function. We will continue to file patent applications where we deem appropriate to protect our inventions and designs, and we expect the number of applications to grow as our business grows and as we continue to innovate. Competition The market for performance apparel, footwear and accessories is highly competitive and includes many new competitors as well as increased competition from established companies expanding their production and marketing of performance products. The fabrics and technology used in manufacturing our products are generally not unique to us, and we do not currently own any fabric or process patents. Many of our competitors are large apparel, footwear and sporting goods companies with strong worldwide brand recognition and significantly greater resources than us, such as Nike and adidas. We also compete with other manufacturers, including those specializing in outdoor apparel, and private label offerings of certain retailers, including some of our customers. In addition, we must compete with others for purchasing decisions, as well as limited floor space at retailers. We believe we have been successful in this area because of the relationships we have developed and as a result of the strong sales of our products. However, if retailers earn higher margins from our competitors' products, they may favor the display and sale of those products. We believe we have been able to compete successfully because of our brand image and recognition, the performance and quality of our products and our selective distribution policies. We also believe our focused gearline merchandising story differentiates us from our competition. In the future we expect to compete for consumer preferences and expect that we may face greater competition on pricing. This may favor larger competitors with lower production costs per unit that can spread the effect of price discounts across a larger array of products and across a larger customer base than ours. The purchasing decisions of consumers for our products often reflect highly subjective preferences that can be influenced by many factors, including advertising, media, product sponsorships, product improvements and changing styles. Employees As of December 31, 2012 , we had approximately fifty nine hundred employees, including approximately thirty two hundred in our factory house and specialty stores and nine hundred at our distribution facilities. Approximately nineteen hundred of our employees were full-time. Most of our employees are located in the United States and none of our employees are currently covered by a collective bargaining agreement. We have had no labor-related work stoppages, and we believe our relations with our employees are good. 6 Table of Contents Available Information We will make available free of charge on or through our website at www.underarmour.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we file these materials with the Securities and Exchange Commission. We also post on this website our key corporate governance documents, including our board committee charters, our corporate governance guidelines and our ethics policy. ITEM 1A. RISK FACTORS Forward-Looking Statements Some of the statements contained in this Form 10-K and the documents incorporated herein by reference constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as \"may,\" \"will,\" \"should,\" \"expects,\" \"plans,\" \"anticipates,\" \"believes,\" \"estimates,\" \"predicts,\" \"outlook,\" \"potential\" or the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-K and the documents incorporated herein by reference reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by these forward-looking statements, including, but not limited to, those factors described in \"Risk Factors\" and \"Management's Discussion and Analysis of Financial Condition and Results of Operations.\" These factors include without limitation: changes in general economic or market conditions that could affect consumer spending and the financial health of our retail customers; our ability to effectively manage our growth and a more complex business, including new and expanded domestic and international distribution channels; our ability to effectively develop and launch new, innovative and updated products; our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; increased competition causing us to reduce the prices of our products or to increase significantly our marketing efforts in order to avoid losing market share; fluctuations in the costs of our products; loss of key suppliers or manufacturers or failure of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner; our ability to further expand our business globally and to drive brand awareness and consumer acceptance of our products in other countries; our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results; our ability to effectively market and maintain a positive brand image; the availability, integration and effective operation of management information systems and other technology; and our ability to attract and retain the services of our senior management and key employees. The forward-looking statements contained in this Form 10-K reflect our views and assumptions only as of the date of this Form 10-K. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. 7 Table of Contents Our results of operations and financial condition could be adversely affected by numerous risks. You should carefully consider the risk factors detailed below in conjunction with the other information contained in this Form 10-K. Should any of these risks actually materialize, our business, financial condition and future prospects could be negatively impacted. During a downturn in the economy, consumer purchases of discretionary items are affected, which could materially harm our sales, profitability and financial condition. Many of our products may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, the availability of consumer credit and consumer confidence in future economic conditions. Consumer purchases of discretionary items tend to decline during recessionary periods when disposable income is lower or during other periods of economic instability or uncertainty. We have limited experience operating a business during a recessionary period or during periods of slow economic growth and high unemployment and can therefore not predict the full impact of a downturn in the economy on our sales and profitability, including how our business responds when the economy is recovering from a recession or periods of slow growth. A downturn in the economy in markets in which we sell our products may materially harm our sales, profitability and financial condition. If the financial condition of our retail customers declines, our financial condition and results of operations could be adversely impacted. We extend credit to our customers based on an assessment of a customer's financial condition, generally without requiring collateral. We face increased risk of order reduction or cancellation when dealing with financially ailing customers or customers struggling with economic uncertainty. A slowing economy in our key markets or a continued decline in consumer purchases of sporting goods generally could have an adverse effect on the financial health of our retail customers, which could in turn have an adverse effect on our sales, our ability to collect on receivables and our financial condition. A decline in sales to, or the loss of, one or more of our key customers could result in a material loss of net revenues and negatively impact our prospects for growth. In 2012 , approximately 22% of our net revenues were generated from sales to our two largest customers. We currently do not enter into long term sales contracts with these or our other key customers, relying instead on our relationships with these customers and on our position in the marketplace. As a result, we face the risk that one or more of these key customers may not increase their business with us as we expect, or may significantly decrease their business with us or terminate their relationship with us. The failure to increase our sales to these customers as much as we anticipate would have a negative impact on our growth prospects and any decrease or loss of these key customers' business could result in a material decrease in our net revenues and net income. If we continue to grow at a rapid pace, we may not be able to effectively manage our growth and the increased complexity of a global business and as a result our brand image, net revenues and profitability may decline. We have expanded our operations rapidly since our inception and our net revenues have increased to $1,834.9 million in 2012 from $ 725.2 million in 2008 . If our operations continue to grow at a rapid pace, we may experience difficulties in obtaining sufficient raw materials and manufacturing capacity to produce our products, as well as delays in production and shipments, as our products are subject to risks associated with overseas sourcing and manufacturing. We could be required to continue to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes and technology, and to obtain more space to support our expanding workforce. This expansion could increase the strain on these and other resources, and we could experience serious operating difficulties, including difficulties in hiring, training and managing an increasing number of employees. In addition, as our business becomes more complex through the introduction of more new products and the expansion of our distribution channels, including additional specialty and factory house stores and expanded distribution in malls and department stores, and expanded international distribution, these operational strains and other difficulties could increase. These difficulties could result in the erosion of our brand image and a decrease in net revenues and net income. If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products, we may not be able to maintain or increase our net revenues and profitability. Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of performance or other sports products or away from these types of products altogether, and our future success 8 Table of Contents depends in part on our ability to anticipate and respond to these changes. Failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower sales and excess inventory levels. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products. In addition, if we fail to introduce technical innovation in our products, consumer demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems. The failure to effectively introduce new products and enter into new product categories that are accepted by consumers could result in a decrease in net revenues and excess inventory levels, which could have a material adverse effect on our financial condition. Our results of operations could be materially harmed if we are unable to accurately forecast demand for our products. To ensure adequate inventory supply, we must forecast inventory needs and place orders with our manufacturers before firm orders are placed by our customers. In addition, a significant portion of our net revenues are generated by at-once orders for immediate delivery to customers, particularly during our historical peak season from August through November. If we fail to accurately forecast customer demand we may experience excess inventory levels or a shortage of product to deliver to our customers. Factors that could affect our ability to accurately forecast demand for our products include: an increase or decrease in consumer demand for our products; our failure to accurately forecast consumer acceptance for our new products; product introductions by competitors; unanticipated changes in general market conditions or other factors, which may result in cancellations of advance orders or a reduction or increase in the rate of reorders placed by retailers; the impact on consumer demand due to unseasonable weather conditions; weakening of economic conditions or consumer confidence in future economic conditions, which could reduce demand for discretionary items, such as our products; and terrorism or acts of war, or the threat thereof, or political instability or unrest which could adversely affect consumer confidence and spending or interrupt production and distribution of product and raw materials. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would have an adverse effect on gross margin. In addition, if we underestimate the demand for our products, our manufacturers may not be able to produce products to meet our customer requirements, and this could result in delays in the shipment of our products and our ability to recognize revenue, as well as damage to our reputation and customer relationships. The difficulty in forecasting demand also makes it difficult to estimate our future results of operations and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely impact our profitability. We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, resulting in a loss of our market share and a decrease in our net revenues and gross profit. The market for performance apparel, footwear and accessories is highly competitive and includes many new competitors as well as increased competition from established companies expanding their production and marketing of performance products. Because we currently do not own any fabric or process patents, our current and future competitors are able to manufacture and sell products with performance characteristics and fabrications similar to our products. Many of our competitors are large apparel and footwear companies with strong worldwide brand recognition. Due to the fragmented nature of the industry, we also compete with other manufacturers, including those specializing in outdoor apparel and private label offerings of certain retailers, including some of our retail customers. Many of our competitors have significant competitive advantages, including greater financial, distribution, marketing and other resources, longer operating histories, better brand recognition among consumers, more experience in global markets and greater economies of scale. In addition, our competitors have long term relationships with our key retail customers that are potentially more important to those customers because of the significantly larger volume and product mix that our competitors sell to them. As a result, these competitors may be better equipped than we are to influence consumer preferences or otherwise increase their market share by: quickly adapting to changes in customer requirements; 9 Table of Contents readily taking advantage of acquisition and other opportunities; discounting excess inventory that has been written down or written off; devoting resources to the marketing and sale of their products, including significant advertising, media placement, partnerships and product endorsement; adopting aggressive pricing policies; and engaging in lengthy and costly intellectual property and other disputes. In addition, while one of our growth strategies is to increase floor space for our products in retail stores and generally expand our distribution to other retailers, retailers have limited resources and floor space, and we must compete with others to develop relationships with them. Increased competition by existing and future competitors could result in reductions in floor space in retail locations, reductions in sales or reductions in the prices of our products, and if retailers earn greater margins from our competitors' products, they may favor the display and sale of those products. Our inability to compete successfully against our competitors and maintain our gross margin could have a material adverse effect on our business, financial condition and results of operations. Our profitability may decline as a result of increasing pressure on margins. Our industry is subject to significant pricing pressure caused by many factors, including intense competition, consolidation in the retail industry, pressure from retailers to reduce the costs of products and changes in consumer demand. These factors may cause us to reduce our prices to retailers and consumers, which could cause our profitability to decline if we are unable to offset price reductions with comparable reductions in our operating costs. This could have a material adverse effect on our results of operations and financial condition. Fluctuations in the cost of products could negatively affect our operating results. The fabrics used by our suppliers and manufacturers are made of raw materials including petroleum-based products and cotton. Significant price fluctuations or shortages in petroleum or other raw materials can materially adversely affect our cost of goods sold, results of operations and financial condition. We rely on third-party suppliers and manufacturers to provide fabrics for and to produce our products, and we have limited control over these suppliers and manufacturers and may not be able to obtain quality products on a timely basis or in sufficient quantity. Many of the specialty fabrics used in our products are technically advanced textile products developed by third parties and may be available, in the short-term, from a very limited number of sources. Substantially all of our products are manufactured by unaffiliated manufacturers, and, in 2012 , ten manufacturers produced approximately 49% of our products. We have no long term contracts with our suppliers or manufacturing sources, and we compete with other companies for fabrics, raw materials, production and import quota capacity. We may experience a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, our unaffiliated manufacturers may not be able to fill our orders in a timely manner. If we experience significant increased demand, or we lose or need to replace an existing manufacturer or supplier as a result of adverse economic conditions or other reasons, additional supplies of fabrics or raw materials or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, or suppliers or manufacturers may not be able to allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers on our methods, products and quality control standards. Any delays, interruption or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower net revenues and net income both in the short and long term. We have occasionally received, and may in the future continue to receive, shipments of product that fail to conform to our quality control standards. In that event, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenues resulting from the inability to sell those products and related increased administrative and shipping costs. In addition, because we do not control our manufacturers, products that fail to meet our standards or other unauthorized products could end up in the marketplace without our knowledge, which could harm our brand and our reputation in the marketplace. 10 Table of Contents Labor disruptions at ports or our suppliers or manufacturers may adversely affect our business. Our business depends on our ability to source and distribute products in a timely manner. As a result, we rely on the free flow of goods through open and operational ports worldwide and on a consistent basis from our suppliers and manufacturers. Labor disputes at various ports or at our suppliers or manufacturers create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes or other disruptions during our peak importing or manufacturing seasons, and could have an adverse effect on our business, potentially resulting in canceled orders by customers, unanticipated inventory accumulation or shortages and reduced net revenues and net income. Our limited operating experience and limited brand recognition in new markets may limit our expansion strategy and cause our business and growth to suffer. Our future growth depends in part on our expansion efforts outside of the North America. During the year ended December 31, 2012 , 94% of our net revenues were earned in North America. We have limited experience with regulatory environments and market practices outside of North America, and may face difficulties in expanding to and successfully operating in markets outside of North America. In connection with expansion efforts outside of North America, we may face cultural and linguistic differences, differences in regulatory environments, labor practices and market practices and difficulties in keeping abreast of market, business and technical developments and customers' tastes and preferences. We may also encounter difficulty expanding into new markets because of limited brand recognition leading to delayed acceptance of our products. Failure to develop new markets outside of North America will limit our opportunities for growth. The operations of many of our manufacturers are subject to additional risks that are beyond our control and that could harm our business. In 2012 , our products were manufactured by 27 primary manufacturers, operating in 14 countries. Of these, ten manufactured approximately 49% of our products, at locations in Cambodia, China, El Salvador, Honduras, Jordan, Mexico, Nicaragua and the Philippines . During 2012 , approximately 53% of our products were manufactured in Asia , 19% in Central and South America , 18% in the Middle East and 8% in Mexico . As a result of our international manufacturing, we are subject to risks associated with doing business abroad, including: political or labor unrest, terrorism and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured; currency exchange fluctuations; the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, taxes and other charges on imports, trade restrictions and restrictions on the transfer of funds, as well as rules and regulations regarding climate change; reduced protection for intellectual property rights in some countries; disruptions or delays in shipments; and changes in local economic conditions in countries where our manufacturers and suppliers are located. Sales of performance products may not continue to grow and this could adversely impact our ability to grow our business. We believe continued growth in industry-wide sales of performance apparel, footwear and accessories will be largely dependent on consumers continuing to transition from traditional alternatives to performance products. If consumers are not convinced these products are a better choice than traditional alternatives, growth in the industry and our business could be adversely affected. In addition, because performance products are often more expensive than traditional alternatives, consumers who are convinced these products provide a better alternative may still not be convinced they are worth the extra cost. If industry-wide sales of performance products do not grow, our ability to continue to grow our business and our financial condition and results of operations could be materially adversely impacted. Our revolving credit facility provides our lenders with a first-priority lien against substantially all of our assets and contains financial covenants and other restrictions on our actions, and it could therefore limit our operational flexibility or otherwise adversely affect our financial condition. We have, from time to time, financed our liquidity needs in part from borrowings made under a revolving credit facility. Our revolving credit facility provides for a committed revolving credit line of up to $ 300.0 million . The agreement for our revolving credit facility contains a number of restrictions that limit our ability, among other things, to: 11 Table of Contents use our accounts receivable, inventory, trademarks and most of our other assets as security in other borrowings or transactions; incur additional indebtedness; sell certain assets; make certain investments; guarantee certain obligations of third parties; undergo a merger or consolidation; and materially change our line of business. Our revolving credit facility also provides the lenders with the ability to reduce the borrowing base, even if we are in compliance with all conditions of the revolving credit facility, upon a material adverse change to our business, properties, assets, financial condition or results of operations. In addition, we must maintain a certain leverage ratio and interest coverage ratio as defined in the credit agreement. Failure to comply with these operating or financial covenants could result from, among other things, changes in our results of operations or general economic conditions. These covenants may restrict our ability to engage in transactions that would otherwise be in our best interests. Failure to comply with any of the covenants under the credit agreement could result in a default. In addition, the credit agreement includes a cross default provision whereby an event of default under certain other debt obligations will be considered an event of default under the credit agreement. A default under the credit agreement could cause the lenders to accelerate the timing of payments and exercise their lien on essentially all of our assets, which would have a material adverse effect on our business, operations, financial condition and liquidity. In addition, because borrowings under the revolving credit facility bear interest at variable interest rates, which we do not anticipate hedging against, increases in interest rates would increase our cost of borrowing, resulting in a decline in our net income and cash flow. There were no amounts outstanding under our revolving credit facility as of December 31, 2012 . We may need to raise additional capital required to grow our business, and we may not be able to raise capital on terms acceptable to us or at all. Growing and operating our business will require significant cash outlays and capital expenditures and commitments. If cash on hand and cash generated from operations are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through debt or equity financing, to fund our growth. We may not be able to raise needed cash on terms acceptable to us or at all. Financing may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price per share of our common stock. The holders of new securities may also have rights, preferences or privileges which are senior to those of existing holders of common stock. If new sources of financing are required, but are insufficient or unavailable, we will be required to modify our growth and operating plans based on available funding, if any, which would harm our ability to grow our business. Our operating results are subject to seasonal and quarterly variations in our net revenues and net income, which could adversely affect the price of our Class A Common Stock. We have experienced, and expect to continue to experience, seasonal and quarterly variations in our net revenues and net income. These variations are primarily related to increased sales of our products during the fall season, reflecting our historical strength in fall sports, and the seasonality of sales of our higher priced COLDGEAR line. The majority of our net revenues were generated during the last two quarters in each of 2012 , 2011 and 2010 , respectively. Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including, among other things, the timing and introduction of advertising for new products and changes in our product mix. Variations in weather conditions may also have an adverse effect on our quarterly results of operations. For example, warmer than normal weather conditions throughout the fall or winter may reduce sales of our COLDGEAR line, leaving us with excess inventory and operating results below our expectations. As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our operating results between different quarters within a single year are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of our future performance. Any seasonal or quarterly fluctuations that we report in the future may not match the expectations of market analysts and investors. This could cause the price of our Class A Common Stock to fluctuate significantly. 12 Table of Contents The value of our brand and sales of our products could be diminished if we are associated with negative publicity. We require our suppliers, independent manufacturers and licensees of our products to operate their businesses in compliance with the laws and regulations that apply to them as well as the social and other standards a