Under Armour

A Leader in Product Financial Innovation

ADAM M. WIKLUND, CFA DECEMBER 10, 2012

Table of Contents
1

Company Background
Product Innovation

Financial Innovation
Management & Risks Valuations Appendix

Executive Summary
$40.49 Target Price 22% Return Potential
2

Bottom line: Under Armour is phenomenal at marketing perception They fool people into believing the technology in their products is their own They fool investors, using questionable tactics, into believing their brand lacking anything proprietary is worth $5.5 billion

Company Background
3 TIMELINE WHAT UA SELLS WHERE UA SELLS IT HOW UA SELLS IT GROWTH DRIVERS

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Company Background
Under Armours Timeline
4

1995 Kevin Plank, special teams captain on the University of Maryland football team, noticed that the cotton T-shirts hed wear under his pads were always soaked while his compression shorts held up much better 1996 Built his first prototype and then gave them to his Maryland teammates and friends whod gone on to play in the NFL Used feedback to tweak the design Maxed out his credit cards to $40,000 and set up a company in his grandmothers basement in Washington, D.C. $250,000 Small Business Loan Sold 500 HeatGear shirts, generating $17,000 1997 Made his first team sale to Georgia Tech $100,000 in orders Introduced ColdGear to insulate in the cold 12 college teams and 10 NFL teams begin wearing UA garments
Company Background Product Innovation Financial Innovation Management & Risks Valuations Appendix

Company Background
Under Armours Timeline
5

1999 Warner Brothers contracted UA to outfit its actors in two upcoming football movies (Any Given Sunday and The Replacements) Purchased an ad in ESPN The Magazine that generated close to $750,000 2003 Launched its first television commercial with the rallying cry PROTECT THIS HOUSE 2004 UA launched womens apparel 2006 Released hunting and fishing lines, including camo gear, hunting gloves, and leggings Enters the footwear industry 2007 UA opened its first retail location in Annapolis, Maryland

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Company Background
What Under Armour Sells and Where
6

North America accounted for 94% of sales in 2011

Company Background Product Innovation Financial Innovation Management & Risks Valuations Appendix

Company Background
How Under Armour Sells Products
7

25,000 retail stores world wide

Company Background Product Innovation Financial Innovation Management & Risks Valuations Appendix

Company Background
Growth Drivers: Youths
8

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Company Background
Growth Drivers
9

Apparel & Footwear

Strongest growth occurs in lowest margin products Internet & Retail

Revenue Growth

35%

Footwear (15% of 14E Sales) Apparel (75% of 14E Sales)

DTC

30%

62% YoY growth 27% of sales Growth is not sustainable E-commerce bit part of growth

25%

20%

International

Avg. YoY Revenue Growth (3 years)

Accessories (8% of 14E Sales)

15%

North America 31.1% Other Foreign Countries 32.4% 3Q2012 0.7% 3Q2011 49.4%
Product Innovation Financial Innovation

10%

Licensing (2% of 14E Sales)

YoY revenue growth has slowed

5%

0%

0%

20%

40% 60% Gross Margin

80%

100%

Company Background

Management & Risks

Valuations

Appendix

Product Innovation
10 CULTURE OF INNOVATION STORM CHARGED COTTON INTELLECTUAL PROPERTY MARKETING

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Product Innovation
Under Armour Claims to have a Culture of Innovation
11

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Product Innovation
Water-resistant cotton in Under Armours Charged Cotton Storm
12

UA Storm technology

is the next generation of protection. With this Charged Cotton Storm hoody, weve taken the heavyweight warmth of the classic cotton sweatshirt and added UA Storm waterresistance so rain rolls right off.

Under Armour 2011 Annual Report

Valuations Appendix

Company Background

Product Innovation

Financial Innovation

Management & Risks

Product Innovation
Really just a finish called STORM COTTON invented by Cotton Incorporated
13

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Product Innovation
Mother Nature made it. Under Armour made it better?
14

Part of recent shift of producing apparel made from

synthetic materials to cotton

Company Background Product Innovation Financial Innovation Management & Risks Valuations Appendix

Product Innovation
Actually, Cotton Incorporated made it better
15

2011 witnessed the commercial introduction of the

single largest technology adoption in the history of Cotton Incorporated: the introduction of the Charged Cotton and Charged Cotton Storm lines from Under Armour In only nine months since its launch, Charged Cotton is now the number-one selling Under Armour apparel item in the mens category, outpacing sales of their topperforming synthetic apparel, and has been referred to by Under Armours CEO, Kevin Plank, as a significant reason for the companys success in the second and third quarters of 2011.

Cotton Incorporated 2011 Annual Report

Product Innovation Financial Innovation Management & Risks Valuations Appendix

Company Background

Product Innovation
Under Armour Admits Lack of Intellectual Property
16

IP owned by Under Armour (none)

IP owned by suppliers Technology Fabrics Processes

Competitors have greater financial, distribution, marketing and other resources

they can sell the same product for lower prices

Anyone can replicate the STORM or Charged Cotton

and they can do it cheaper than UA (i.e. C9 by Champion)

Company Background Product Innovation Financial Innovation Management & Risks Valuations Appendix

Product Innovation
Under Armour is a Phenomenal Marketer
17

What is Under Armour really selling? Their brand The perception of a superior product On-field presence Bottom line: UA sells great products, but they are not proprietary and can be replicated by competitors for cheaper than UA can produce
Company Background Product Innovation Financial Innovation Management & Risks Valuations Appendix

Financial Innovation
18 SELLING, GENERAL, AND ADMINISTRATIVE REAL ESTATE INVENTORY ALLOWANCE FOR DOUBTFUL ACCOUNTS CASH FLOW FROM OPERATIONS VS. NET INCOME

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Financial Innovation
SG&A: Gross Margins of UA vs. Peer Group
19

UA has higher gross

margins, relative to peer group and S&P 500, appears to be a competitive advantage

but UAs creative

accounting makes Gross Margins uncomparable across peers

Product Innovation

Company Background

Financial Innovation

Management & Risks

Valuations

Appendix

Financial Innovation
SG&A: UA Boosts Gross Margin by Dividing Shipping and Handling
20

UA

COGS

Outbound freight costs Outbound handling costs

SG&A

NIKE and other peers

COGS

Outbound freight costs AND outbound handling costs

Conference calls constantly reference Gross Margin as a benchmark

Keeps this fresh in analysts minds and fooled to believe this is the right metric to look at

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Financial Innovation
SG&A: UAs Gross Margin Advantage is Overstated by ~30%
21
54%

52%

50% 48.52% 46.68% 46%

48%

GM vs. Adjusted GM 1.84% lower with adjustments Manual step to make adjustment since its not a line item

44%

Example in previous slide

42%

Adjust report by report based on commentary

40%

Mar-07

Mar-08

Mar-09

Nov-08

Nov-09

Nov-07

Jul-10

Mar-11

Nov-11

Jul-09

Mar-10

Gross Margin Avg. GM Company Background

Adjusted Gross Margin Avg. Adj. GM

Product Innovation

Nov-10

Financial Innovation

Mar-12

Jul-08

Jul-07

Jul-12

Jul-11

No shortcuts

Management & Risks

Valuations

Appendix

Financial Innovation
Real Estate
22

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Financial Innovation
Real Estate
23

Booked a profit on its

2011 Purchase Price Fair Value Difference Acquisition Related Expenses Profit Tax Rate Tax Adjusted Profit on Office Space Impact on EPS 4Q2011 Consensus Forecase UA Reported Earnings $60.5 $63.8 $3.3 ($1.9) $1.4 37.6% 0.87 $0.01 $0.30 $0.31

office space within five months of acquiring it Added the profit to SG&A

Boosted Operating Income in 4Q2011

There have been several

instances where management finds a way to beat the estimates by jockeying earnings numbers
Product Innovation Financial Innovation

Company Background

Management & Risks

Valuations

Appendix

Financial Innovation
Earnings Quality from Thomson ONE/StarMine
24

StarMine Computer-driven models analyze the financial statements of 33,000 companies and calculates a ranking for each Scores have proven to be reliable predictors of the extent to which a company generates earnings that are sustainable over the coming quarters Lower score indicates lower-quality earnings (0-100) Under Armour scores a 7

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Financial Innovation
Cash Conversion Cycle: Is the Recent Dip, Led by Inventory, a Good Thing?
25
250

200

150

100

50

Cash Conversion Cycle A/R + Inv A/P # of days that elapse between a company disbursing cash and collecting it Recent improvement, but inventory challenges in past 3Q2012 Conference Call Inventories down and history of supply chain challenges Expect challenges in Q4

0
Mar-08 Aug-08 Jun-09 May-07 Nov-09 Jan-09 Apr-10 Sep-10 Dec-06 Oct-07 Dec-11 Feb-11 Jul-11 May-12 Sep-05 Feb-06 Jul-06

Avg. Cash Conversion Cycle Avg. Days Inventory Out.

Avg. Days Sales Out. Avg. Days Payable Out.

Lean on airfreight to make sure we can meet demand Mostly talking about ColdGear which is weather dependent and higher margin item

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Financial Innovation
Allowance for Doubtful Accounts: The End to this Game is Near
26
7%

The portion of A/R that

6%

5%

4%

management estimates may not be collected Has been steadily decreasing as a percentage of A/R

3%

2%

1%

0% Dec-10 Jun-09 Dec-11 Sep-11 Mar-09 Dec-08 Dec-09 Sep-09 Sep-10 Mar-10

In general, this should be stable 1/3 of the 70 retailers in the Thomson ONE/StarMine database with a market cap greater than $500 million have reported increasing the percentage of A/R that they view as ADA
Valuations Appendix

Mar-12

Mar-11

Jun-10

ADA/AR

Company Background

Product Innovation

Financial Innovation

Jun-12

Sep-12

Jun-11

Management & Risks

Financial Innovation
Allowance for Doubtful Accounts: The End to this Game is Near
27
$0.60 $0.54 $0.50 $0.44

Overly optimistic or earnings

manipulation?

$0.40 $0.34
$0.31 $0.30 $0.22 $0.20 $0.12 $0.10 $0.14

Reducing the Allowance for Doubtful Accounts as a percentage of A/R impacts net income and earnings per share Since 3Q2010, Under Armour has artificially increased EPS by $0.02 each quarter by lowering the ADA as a % of A/R

Compared to using % from prior year to account for seasonality

UA cant keep this up much

$0.06 $0.06 $0.04 $0.03 $0.02 $0.02 $0.02 $0.02 $0.01 $0.02 $0.02 $0.00 Sep-11 Sep-10 Mar-11 Nov-10 Mar-12 May-11 May-12 Nov-11 Sep-12 Jul-11 Jan-11 Jan-12 Jul-12

longer

Previous chart shows the % cant get much lower

Impact on EPS

Actual EPS

Adjusted EPS

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Financial Innovation
Cash Flow from Operations vs. Net Income
28

CFFO vs. Net Income Dont like Cash Flow from Ops. to be less than Net Income this often Earnings backed by cash are more sustainable than earnings from non-cash sources Not sustainable!

200

150

100

50

-50

-100

-150 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Cash Flow from Ops. Company Background Product Innovation Financial Innovation Management & Risks Net Income Valuations Difference Appendix

Management & Risks

29 RELIANT ON OTHERS FOR GROWTH MANAGEMENT REGIMES VOTING POWER OTHER RISKS

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Management
Reliant on Others for Their Own Growth
30

Partnership with distributors needed to grow footwear and apparel

Foot Locker

250 doors 200 doors 3,000+ opportunity

Champs Foot Locker & Champs Finish Line Macys

300 doors currently Going into 150

Dillards

Reliant on others to grow

Dicks Sporting Goods (16%) and The Sports Authority (10%) account for 26% of UAs revenue Have been slow to expand their Direct-to-Consumer sales

Distributors make less money on UA so less incentive to sell their products

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Management
Stock Returns During Different Management Regimes
31

Lack of oversight Kevin Plank

Founder President CEO Chairman

David McCreight was

President from 7/2008 to 8/20/2010

Stock has nearly tripled in two years after Kevin took over the role of President
Valuations Appendix

Company Background

Product Innovation

Financial Innovation

Management & Risks

Management
When Did the Suspicious Earnings from N0n-Cash Sources Start?
32
200

150

100

50

-50

-100

Company Background

Product Innovation

Financial Innovation

Management & Risks

Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Cash Flow from Ops. Net Income Difference Appendix Valuations

August 20, 2010

September 2010

-150

Management
Unequal Voting Power
33

Our President and Chief Executive Officer controls the

majority of the voting power of our common stock.

Our Class A Common Stock has one vote per share and our Class B Convertible Common Stock has 10 votes per share. Our President and Chief Executive Officer, Kevin A. Plank, beneficially owns all outstanding shares of Class B Convertible Common Stock. As a result, Mr. Plank has the majority voting control and is able to direct the election of all of the members of our Board of Directors and other matters we submit to a vote of our stockholders. This concentration of ownership may have various effects including, but not limited to, delaying or preventing a change of control. # of A Shares = 100 million # of B Shares = 11.3 million Kevin Plank 113 vs. All Other Shareholders 100

Voting Breakdown

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Other Risks
Commodity Exposure to Cotton and Petroleum Costs
34

Shirts made of both

cotton and petroleum derivative Commodity prices have acted as a tailwind the past two years

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Other Risks
What Worries Me About this Business
35

Inventory challenges Airfreight expenses Weather Cyclical business (fall sports and winter gear) Higher margin items = ColdGear

Warm winters hurt the bottom line

Economic health is questionable with consumer spending

pulling back

US Europe

How will they grow/expand in this environment? 2014/2015 growth story (according to Plank)

Spreading themselves too thin Entering markets where they are not the lowest cost producer or the premium player
Company Background Product Innovation Financial Innovation Management & Risks Valuations Appendix

Valuation
36 DISCOUNTED CASH FLOWS RELATIVE VALUATION

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Discounted Cash Flow Analysis
37

How do you value a company with shady financials? When will management run out of tricks to surprise EPS? When will the market have enough? DCF Base Case (30%)

$51.26

Bull Case (20%)

$59.59
$26.38

Bear Case (50%)

Expected Fair Price $40.49 22% overvalued Note: this fair price assumes management accounting

shenanigans continue

The true fair value is much lower

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Discounted Cash Flow Analysis: Base Case ($51.26)
38
Discounted Cash Flow Analysis Sales YoY Growth COGS % of Sales EBIT YoY Growth Less: Tax Effect Tax Rate Plus: Depreciation & Amortization YoY Growth Accounts Receivables Sales Per Day Days of Receivables Inventories COGS Per Day Days of Inventory Accounts Payable COGS Per Day Days Payable Outstanding Less Increases in Net Working Capital YoY Growth Less: Capital Expenditures CapEx as % of Sales Free Cash Flow Growth Rate PV of FCF to Firm Total PV of FCF to Firm Growing Perpetuity PV of Growing Perpetuity Cash Flow From Operations CFO per $ of Sales CAPEX per $ of Sales FCF per $ of Sales DCF: Base Case WACC - Projection Period FCF Growth Into Perpetuity Present Value of Future Cash Flows PV of Perpetuity Cash Flow Total EV Net Debt Total Equity Value Share Count Per Share Fair Value 15.1 0.0 (0.1) (0.1) 99.5 0.1 (0.0) 0.0 2011 1,472.7 38.4% 759.8 51.6% 162.6 44.9% (62.2) 38.2% 36.3 15.9% 134.0 4.0 33.2 324.4 2.1 155.8 100.5 2.1 48.3 (131.4) 61.4% (79.4) (5.4%) (74.0) 661.3% NA 2012E 1,825.8 24.0% 956.8 52.4% 199.0 22.3% (73.1) 36.8% 42.0 15.8% 163.8 5.0 32.7 394.5 2.6 150.5 130.6 2.6 49.8 (72.9) (44.5%) (67.0) (3.7%) 28.0 2013E 2,266.1 24.1% 1,157.3 51.1% 277.6 39.5% (104.8) 37.8% 50.5 20.1% 217.3 6.2 35.0 459.7 3.2 145.0 154.5 3.2 48.7 (94.8) 30.0% (76.7) (3.4%) 51.8 85.3% 47.3 2014E 2,813.3 24.1% 1,422.0 50.5% 358.8 29.3% (135.4) 37.8% 57.8 14.5% 269.8 7.7 35.0 545.4 3.9 140.0 189.9 3.9 48.7 (102.8) 8.5% (81.6) (2.9%) 96.8 86.8% 80.6 2015E 3,404.1 21.0% 1,720.6 50.5% 420.5 17.2% (154.5) 36.8% 65.9 14.0% 326.4 9.3 35.0 660.0 4.7 140.0 254.6 4.7 54.0 (106.5) 3.6% (85.1) (2.5%) 140.3 44.9% 106.5 2016E 4,101.9 20.5% 2,073.4 50.5% 506.7 20.5% (181.2) 35.8% 74.9 13.5% 393.3 11.2 35.0 795.3 5.7 140.0 306.7 5.7 54.0 (150.0) 40.8% (102.5) (2.5%) 147.9 5.4% 102.5 2017E 4,840.2 18.0% 2,446.6 50.5% 597.9 18.0% (207.8) 34.8% 78.6 5.0% 464.1 13.3 35.0 938.4 6.7 140.0 362.0 6.7 54.0 (158.7) 5.8% (96.8) (2.0%) 213.2 44.2% 134.8 2018E 5,711.5 18.0% 2,887.0 50.5% 705.6 18.0% (238.1) 33.8% 82.5 5.0% 547.7 15.6 35.0 1,107.3 7.9 140.0 427.1 7.9 54.0 (187.3) 18.0% (114.2) (2.0%) 248.4 16.5% 143.3 2019E 6,682.4 17.0% 3,377.7 50.5% 825.5 17.0% (270.4) 32.8% 86.7 5.0% 640.8 18.3 35.0 1,295.6 9.3 140.0 499.7 9.3 54.0 (208.7) 11.4% (120.3) (1.8%) 312.8 25.9% 164.6 2020E 7,751.6 16.0% 3,918.2 50.5% 957.6 16.0% (304.0) 31.8% 91.0 5.0% 743.3 21.2 35.0 1,502.9 10.7 140.0 579.7 10.7 54.0 (229.9) 10.1% (77.5) (1.0%) 437.2 39.8% 209.9 989.5 8,187.0 4,262.7

221.7 0.1 (0.0) 0.0

9.6% 3.0% 989.5 4,262.7 5,252.3 (97.7) 5,349.9 104.373 $51.26

8.5%

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Discounted Cash Flow Analysis: Bull Case ($59.69)
39
Discounted Cash Flow Analysis Sales YoY Growth COGS % of Sales EBIT YoY Growth Less: Tax Effect Tax Rate Plus: Depreciation & Amortization YoY Growth Accounts Receivables Sales Per Day Days of Receivables Inventories COGS Per Day Days of Inventory Accounts Payable COGS Per Day Days Payable Outstanding Less Increases in Net Working Capital YoY Growth Less: Capital Expenditures CapEx as % of Sales Free Cash Flow Growth Rate PV of FCF to Firm Total PV of FCF to Firm Growing Perpetuity PV of Growing Perpetuity Cash Flow From Operations CFO per $ of Sales CAPEX per $ of Sales FCF per $ of Sales DCF: Bull Case WACC - Projection Period FCF Growth Into Perpetuity Present Value of Future Cash Flows PV of Perpetuity Cash Flow Total EV Net Debt Total Equity Value Share Count Per Share Fair Value 15.1 0.0 (0.1) (0.1) 66.7 0.0 (0.0) (0.0) 2011 1,472.7 38.4% 759.8 51.6% 162.6 44.9% (62.2) 38.2% 36.3 15.9% 134.0 4.0 33.2 324.4 2.1 155.8 100.5 2.1 48.3 (131.4) 61.4% (79.4) (5.4%) (74.0) 661.3% NA 2012E 1,866.9 26.8% 975.1 52.2% 202.1 24.3% (74.3) 36.8% 42.0 15.8% 177.3 5.1 34.7 423.1 2.7 158.4 140.0 2.7 52.4 (105.6) (19.6%) (68.7) (3.7%) (4.4) 2013E 2,422.1 29.7% 1,225.5 50.6% 348.2 72.3% (131.4) 37.8% 51.0 21.2% 232.3 6.6 35.0 486.9 3.4 145.0 173.3 3.4 51.6 (85.4) (19.1%) (78.4) (3.2%) 103.9 (2471.8%) 94.8 2014E 3,208.0 32.4% 1,610.1 50.2% 420.5 20.8% (158.7) 37.8% 58.6 15.1% 307.6 8.8 35.0 617.6 4.4 140.0 227.7 4.4 51.6 (151.7) 77.6% (87.2) (2.7%) 81.5 (21.5%) 67.9 2015E 3,881.6 21.0% 1,948.2 50.2% 493.3 17.3% (181.3) 36.8% 67.2 14.6% 372.2 10.6 35.0 747.3 5.3 140.0 288.2 5.3 54.0 (133.7) (11.9%) (97.0) (2.5%) 148.5 82.1% 112.8 2016E 4,677.4 20.5% 2,347.6 50.2% 594.4 20.5% (212.5) 35.8% 76.7 14.1% 448.5 12.8 35.0 900.5 6.4 140.0 347.3 6.4 54.0 (170.4) 27.4% (116.9) (2.5%) 171.2 15.3% 118.7 2017E 5,519.3 18.0% 2,770.2 50.2% 701.4 18.0% (243.7) 34.8% 80.5 5.0% 529.2 15.1 35.0 1,062.5 7.6 140.0 409.8 7.6 54.0 (180.3) 5.8% (110.4) (2.0%) 247.5 44.5% 156.5 2018E 6,512.8 18.0% 3,268.9 50.2% 827.7 18.0% (279.3) 33.8% 84.5 5.0% 624.5 17.8 35.0 1,253.8 9.0 140.0 483.6 9.0 54.0 (212.8) 18.0% (130.3) (2.0%) 289.9 17.1% 167.2 2019E 7,620.0 17.0% 3,824.6 50.2% 968.4 17.0% (317.2) 32.8% 88.7 5.0% 730.7 20.9 35.0 1,467.0 10.5 140.0 565.8 10.5 54.0 (237.1) 11.4% (137.2) (1.8%) 365.7 26.2% 192.5 2020E 8,839.2 16.0% 4,436.5 50.2% 1,123.3 16.0% (356.7) 31.8% 93.2 5.0% 847.6 24.2 35.0 1,701.7 12.2 140.0 656.4 12.2 54.0 (261.1) 10.1% (88.4) (1.0%) 510.4 39.6% 245.1 1,155.3 9,558.2 4,976.7

279.0 0.1 (0.0) 0.0

9.6% 3.0% 1,155.3 4,976.7 6,132.0 (97.7) 6,229.6 104.373 $59.69

8.5%

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Discounted Cash Flow Analysis: Bear Case ($26.38)
40
Discounted Cash Flow Analysis Sales YoY Growth COGS % of Sales EBIT YoY Growth Less: Tax Effect Tax Rate Plus: Depreciation & Amortization YoY Growth Accounts Receivables Sales Per Day Days of Receivables Inventories COGS Per Day Days of Inventory Accounts Payable COGS Per Day Days Payable Outstanding Less Increases in Net Working Capital YoY Growth Less: Capital Expenditures CapEx as % of Sales Free Cash Flow Growth Rate PV of FCF to Firm Total PV of FCF to Firm Growing Perpetuity PV of Growing Perpetuity Cash Flow From Operations CFO per $ of Sales CAPEX per $ of Sales FCF per $ of Sales DCF: Bear Case WACC - Projection Period FCF Growth Into Perpetuity Present Value of Future Cash Flows PV of Perpetuity Cash Flow Total EV Net Debt Total Equity Value Share Count Per Share Fair Value 15.1 0.0 (0.1) (0.1) 136.1 0.1 (0.0) 0.0 2011 1,472.7 38.4% 759.8 51.6% 162.6 44.9% (62.2) 38.2% 36.3 15.9% 134.0 4.0 33.2 324.4 2.1 155.8 100.5 2.1 48.3 (131.4) 61.4% (79.4) (5.4%) (74.0) 661.3% NA 2012E 1,794.8 21.9% 931.8 51.9% 196.9 21.1% (72.4) 36.7% 42.0 15.8% 153.6 4.9 31.2 355.6 2.6 139.3 117.7 2.6 46.1 (36.6) (72.1%) (65.8) (3.7%) 64.2 2013E 2,079.8 15.9% 1,056.8 50.8% 263.8 33.9% (99.6) 37.8% 50.1 19.3% 199.4 5.7 35.0 419.8 2.9 145.0 137.0 2.9 47.3 (90.8) 147.9% (75.4) (3.6%) 48.2 (25.0%) 43.9 2014E 2,261.5 8.7% 1,217.9 53.9% 227.2 (13.9%) (85.8) 37.8% 57.2 14.1% 216.9 6.2 35.0 467.1 3.3 140.0 157.9 3.3 47.3 (43.9) (51.7%) (74.9) (3.3%) 79.9 66.0% 66.5 2015E 2,736.4 21.0% 1,473.6 53.9% 247.6 9.0% (91.0) 36.8% 65.0 13.6% 262.4 7.5 35.0 565.2 4.0 140.0 218.0 4.0 54.0 (83.5) 90.4% (68.4) (2.5%) 69.7 (12.9%) 52.9 2016E 3,297.4 20.5% 1,775.7 53.9% 298.3 20.5% (106.7) 35.8% 73.5 13.1% 316.2 9.0 35.0 681.1 4.9 140.0 262.7 4.9 54.0 (125.0) 49.6% (82.4) (2.5%) 57.8 (17.1%) 40.0 2017E 3,891.0 18.0% 2,095.4 53.9% 352.0 18.0% (122.3) 34.8% 77.2 5.0% 373.1 10.7 35.0 803.7 5.7 140.0 310.0 5.7 54.0 (132.2) 5.8% (77.8) (2.0%) 96.8 67.6% 61.2 2018E 4,591.3 18.0% 2,472.5 53.9% 415.4 18.0% (140.2) 33.8% 81.0 5.0% 440.3 12.6 35.0 948.4 6.8 140.0 365.8 6.8 54.0 (156.0) 18.0% (91.8) (2.0%) 108.4 11.9% 62.5 2019E 5,371.8 17.0% 2,892.9 53.9% 486.0 17.0% (159.2) 32.8% 85.1 5.0% 515.1 14.7 35.0 1,109.6 7.9 140.0 428.0 7.9 54.0 (173.9) 11.4% (96.7) (1.8%) 141.4 30.4% 74.4 2020E 6,231.3 16.0% 3,355.7 53.9% 563.8 16.0% (179.0) 31.8% 89.3 5.0% 597.5 17.1 35.0 1,287.1 9.2 140.0 496.5 9.2 54.0 (191.5) 10.1% (62.3) (1.0%) 220.3 55.9% 105.8 507.4 4,126.2 2,148.4

214.7 0.1 (0.0) 0.0

9.6% 3.0% 507.4 2,148.4 2,655.8 (97.7) 2,753.4 104.373 $26.38

8.5%

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Relative Valuation
41

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Relative Valuation: Can you guess which point is Under Armour?
42
25

20

Price to EBITDA

15

10

10

15 20 Normalized ROE

25

30

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Relative Valuation: Price to EBITDA
43
35 30 25 20 15 10

5
0

Under Armour Inc Wolverine World Wide Inc VF Corp

NIKE Inc Deckers Outdoor Corp PVH Corp

Columbia Sportswear Co Ralph Lauren Corp Steven Madden Ltd

Adidas AG Hanesbrands Inc Iconix Brand Group Inc

Crocs Inc

Jones Group Inc/The

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Relative Valuation: Price to Earnings
44
60

50

40

30

20

10

Under Armour Inc Wolverine World Wide Inc VF Corp

NIKE Inc Deckers Outdoor Corp PVH Corp

Columbia Sportswear Co Ralph Lauren Corp Steven Madden Ltd

Adidas AG Hanesbrands Inc Iconix Brand Group Inc

Jones Group Inc/The

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Relative Valuation: Ford Valuation Bands
45

Ford Valuation Bands Valuation banks based on the highest and lowest P/E ratio in the past five years applied to the trailing 12 month operating earnings
Company Background Product Innovation Financial Innovation Management & Risks Valuations Appendix

Executive Summary
$40.49 Target Price 22% Return Potential
46

Bottom line:

Under Armour is phenomenal at marketing perception They fool people into believing the technology in their products is their own They fool investors, using questionable tactics, into believing their brand lacking anything proprietary is worth $5.5 billion

Questions?

Appendix
47 WACC GROWTH ASSUMPTIONS MARGIN ASSUMPTIONS

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Company Background
Brief Financial Overview
48

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Assumptions: WACC
49

Projection Period Equity Beta Risk Free Rate Market Risk Premium Tax Rate Ke Kd We Wd WACC 1.54 2.0% 5.0% 32.0% 9.7% 3.5% 98.7% 1.3% 9.6%

Perpetual Period 1.2 2.5% 5.0% 32.0% 8.5% 3.5% 100.0% 0.0% 8.5%

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Assumptions: Growth & Margins
50

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Assumptions: Growth & Margins
51

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Assumptions: Growth & Margins
52

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix

Valuation
Assumptions: Growth & Margins
53
Bull Case Revenue Growth Men's Women's Youth Apparel Footwear Accessories Licensing Gross Margin (estimated) Apparel Footwear Accessories Licensing SG&A as % of Sales Marketing Costs Selling Costs Product Innovation and Supply Chain Costs Corporate Services 38.5% 18.0% 45.0% 19.7% 213.1% 15.0% 41.4% 20.0% 43.0% 30.9% 265.7% -26.5% 34.9% 20.0% 40.0% 96.7% 211.0% -17.8% 29.5% 19.0% 35.0% 42.8% 149.4% 10.7% 35.1% 19.3% 40.3% 42.9% 201.7% -7.1% 23.0% 22.7% 23.0% 23.8% 25.9% 7.2% 23.0% 25.0% 23.4% 43.8% 21.1% 37.1% 22.0% 23.0% 23.0% 21.4% 37.1% 24.8% 32.0% 33.5% 32.5% 55.5% 28.0% 20.0% 25.0% 40.0% 26.5% 40.0% 28.0% 8.0% 25.0% 40.0% 27.3% 40.0% 28.0% 6.0% 25.0% 39.0% 25.3% 40.0% 28.0% 7.0% 25.5% 41.2% 27.4% 40.0% 28.0% 10.7% 30.0% 30.0% 50.0% 50.0% 30.0% 6.0% 30.0% 30.0% 50.0% 40.0% 30.0% 5.0%

48.9% 27.4% 50.0% 90.0%

48.2% 29.0% 49.1% 90.0%

49.4% 30.0% 52.3% 90.0%

51.7% 32.1% 54.9% 90.0%

49.7% 29.4% 51.8% 90.0%

47.8% 27.8% 51.0% 90.0%

48.0% 29.0% 50.1% 90.0%

49.8% 30.0% 52.0% 90.0%

49.9% 31.2% 53.9% 90.0%

50.4% 28.8% 52.7% 90.0%

49.6% 30.4% 51.6% 90.0%

50.9% 33.7% 54.9% 90.0%

52.4% 34.9% 57.4% 90.0%

52.0% 33.0% 54.0% 90.0%

52.0% 32.0% 54.0% 90.0%

13.3% 8.9% 9.3% 8.1%

11.7% 10.5% 10.7% 9.4%

10.4% 7.9% 7.7% 6.3%

10.9% 10.9% 8.2% 7.9%

11.4% 9.5% 8.8% 7.7%

11.5% 9.8% 9.8% 8.1%

12.6% 10.5% 10.7% 8.9%

11.4% 7.9% 7.5% 6.1%

12.0% 10.0% 7.2% 6.5%

11.0% 9.6% 9.2% 7.4%

11.0% 10.2% 10.1% 8.3%

11.0% 7.7% 6.9% 5.6%

11.0% 10.0% 7.1% 6.3%

11.6% 9.4% 8.6% 7.0%

11.8% 9.4% 8.6% 6.9%

Base Case Revenue Growth Men's Women's Youth Apparel Footwear Accessories Licensing Total Gross Margin (estimated) Apparel Footwear Accessories Licensing Total SG&A as % of Sales Marketing Costs Selling Costs Product Innovation and Supply Chain Costs Corporate Services 38.5% 18.0% 45.0% 19.7% 213.1% 15.0% 36.3% 41.4% 20.0% 43.0% 30.9% 265.7% -26.5% 42.3% 34.9% 20.0% 40.0% 96.7% 211.0% -17.8% 41.7% 29.5% 19.0% 35.0% 42.8% 149.4% 10.7% 33.9% 35.1% 19.3% 40.3% 42.9% 201.7% -7.1% 38.4% 23.0% 22.7% 23.0% 23.8% 25.9% 7.2% 22.9% 23.0% 25.0% 23.4% 43.8% 21.1% 37.1% 26.8% 22.0% 23.0% 23.0% 21.4% 37.1% 24.8% 23.6% 22.0% 23.5% 22.5% 45.5% 18.0% 3.0% 25.2% 23.0% 24.0% 23.5% 23.3% 32.3% 26.4% 17.5% 24.5% 20.0% 30.0% 24.0% 35.0% 23.0% 6.0% 24.6% 20.0% 30.0% 24.8% 35.0% 23.0% 4.0% 24.5% 20.0% 29.0% 22.8% 35.0% 23.0% 5.0% 23.5% 20.5% 31.2% 24.9% 35.0% 23.0% 8.7% 24.1% 20.1% 30.0% 24.0% 22.9% 35.0% 23.0% 6.0% 24.1% 21.5% 30.0% 24.0% 30.0% 21.0% 5.0% 24.1%

48.9% 27.4% 50.0% 90.0% 46.4%

48.2% 29.0% 49.1% 90.0% 46.3%

49.4% 30.0% 52.3% 90.0% 48.4%

51.7% 32.1% 54.9% 90.0% 51.6%

49.7% 29.4% 51.8% 90.0% 48.4%

47.8% 27.8% 51.0% 90.0% 45.6%

48.0% 29.0% 50.1% 90.0% 45.9%

49.8% 30.0% 52.0% 90.0% 48.7%

49.5% 30.8% 53.5% 90.0% 51.1%

49.6% 29.7% 52.3% 90.0% 48.1%

50.0% 28.4% 52.3% 90.0% 47.0%

49.2% 30.0% 51.2% 90.0% 46.5%

50.5% 33.3% 54.5% 90.0% 49.6%

52.0% 34.5% 57.0% 90.0% 51.5%

50.6% 31.3% 54.0% 90.0% 48.9%

51.5% 32.0% 54.0% 90.0% 49.5%

13.3% 8.9% 9.3% 8.1%

11.7% 10.5% 10.7% 9.4%

10.4% 7.9% 7.7% 6.3%

10.9% 10.9% 8.2% 7.9%

11.4% 9.5% 8.8% 7.7%

11.5% 9.8% 9.8% 8.1%

12.6% 10.5% 10.7% 8.9%

11.4% 7.9% 7.5% 6.1%

10.0% 10.2% 7.7% 6.8%

11.3% 9.5% 8.7% 7.3%

12.0% 9.8% 9.7% 7.7%

13.0% 10.4% 10.6% 8.6%

11.5% 7.9% 7.4% 5.9%

10.5% 10.2% 7.6% 6.6%

11.6% 9.4% 8.6% 7.0%

11.8% 9.4% 8.6% 6.9%

Bear Case Revenue Growth Men's Women's Youth Apparel Footwear Accessories Licensing Gross Margin (estimated) Apparel Footwear Accessories Licensing SG&A as % of Sales Marketing Costs Selling Costs Product Innovation and Supply Chain Costs Corporate Services 38.5% 18.0% 45.0% 19.7% 213.1% 15.0% 41.4% 20.0% 43.0% 30.9% 265.7% -26.5% 34.9% 20.0% 40.0% 96.7% 211.0% -17.8% 29.5% 19.0% 35.0% 42.8% 149.4% 10.7% 35.1% 19.3% 40.3% 42.9% 201.7% -7.1% 23.0% 22.7% 23.0% 23.8% 25.9% 7.2% 23.0% 25.0% 23.4% 43.8% 21.1% 37.1% 22.0% 23.0% 23.0% 21.4% 37.1% 24.8% 15.0% 15.0% 15.0% 35.5% 8.0% 1.0% 15.0% 15.0% 15.0% 25.0% 13.0% 4.0% 15.0% 15.0% 15.0% 25.0% 13.0% 2.0% 15.0% 15.0% 15.0% 25.0% 13.0% 3.0% 15.0% 15.0% 15.0% 25.0% 13.0% 6.7% 10.0% 10.0% 10.0% 10.0% 5.0% 6.0% 10.0% 10.0% 10.0% 5.0% 5.0% 5.0%

48.9% 27.4% 50.0% 90.0%

48.2% 29.0% 49.1% 90.0%

49.4% 30.0% 52.3% 90.0%

51.7% 32.1% 54.9% 90.0%

49.7% 29.4% 51.8% 90.0%

47.8% 27.8% 51.0% 90.0%

48.0% 29.0% 50.1% 90.0%

49.8% 30.0% 52.0% 90.0%

52.0% 30.4% 53.1% 90.0%

51.0% 28.0% 51.9% 90.0%

51.0% 29.6% 50.8% 90.0%

51.0% 32.9% 54.1% 90.0%

51.0% 34.1% 56.6% 90.0%

50.0% 27.0% 53.0% 90.0%

48.0% 27.0% 50.0% 90.0%

13.3% 8.9% 9.3% 8.1%

11.7% 10.5% 10.7% 9.4%

10.4% 7.9% 7.7% 6.3%

10.9% 10.9% 8.2% 7.9%

11.4% 9.5% 8.8% 7.7%

11.5% 9.8% 9.8% 8.1%

12.6% 10.5% 10.7% 8.9%

11.4% 7.9% 7.5% 6.1%

11.2% 10.3% 7.8% 6.9%

11.2% 9.9% 9.8% 7.8%

11.2% 10.5% 10.7% 8.7%

11.2% 8.0% 7.5% 6.0%

11.2% 10.3% 7.7% 6.7%

11.6% 9.0% 8.6% 7.5%

11.0% 9.0% 8.6% 7.5%

Company Background

Product Innovation

Financial Innovation

Management & Risks

Valuations

Appendix