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` Analysts: Jared Kowalski jared-kowalski@uiowa.edu Company Overview Under Armour, Inc. provides apparel, footwear, and accessories with innovative technologies to withstand the various athletic climates. They focus on men, women, and children ranging from the daily active user to inspired and professional athletes. Headquartered in Baltimore, Maryland, the company was founded in 1996 by the CEO, Kevin Plank, and reaches consumers all over world. Domestically, they currently have over 165 factory and house brand stores in operation and continually seek opportunities to expand. Their marketing focuses on building loyal customer relationships and exceeding competition through product differentiation. In 2016, Under Armour took in $4.825 Billion in sales with 83% coming from North America and 15.4% from international regions including EMEA (6.9%), Asia Pacific (5.6%), and Latin America (2.9%). Distribution Channels % of Revenues (2016)

65% Wholesale 31% Direct-to-Consumer (Online and UA Stores) 4% Licenses and Connected Fitness

Product Categories % of Revenues (2016) 67% Apparel 21% Footwear 8% Accessories 4% Licenses and Connected Fitness

Stock Performance Highlights 52 Week High $47.95 52 Week Low $18.40 Beta 1.19 Average Daily Volume 5,349,192 Company Performance Highlights ROA 11.27% ROE 20.89% Current Ratio 2.9 Debt to Equity 2.5 Inventory Turnover 2.7

Current Price $19.21 Target Price Range $16.40 - $18.49

Share Highlights Market Capitalization 8.42B Shares Outstanding $438,439M Forward P/E1 46.9x EV/EBITDA 15.4x Gross Margin 46.4% EPS (2016) $0.45

• Declining Retail Environment: retail is faced with

competition as a big move into e-commerce quickly develops.

• Shift in Consumer Spending Habits: we project consumer spending to continue to increase, but attitudes have changed in the apparel and footwear landscape.

• International Expansion Strategy: Under Armour makes an effort in expanding their sales overseas, but after failed attempts and an unclear vision, their 15% of international sales seem a bit of a stretch to grow any further.

• Credit Rating Devalued: Rating agencies assessed Under Armour after recent earnings report and concluded a pessimistic overview, moving Under Armour’s debt into junk territory.

• Competitive Environment: Under Armour strives in their marketing efforts to fight for a bigger share in the market.

One Year Stock Performance

Krause Fund Research Spring 2017

Recommendation: SELL April 17, 2017

ConsumerDiscretionary UnderArmourInc.(NYSE:UAA)

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I recommend a SELL rating for Under Armour. The athletic brand has been targeted for a weak performance in the consumer discretionary sector. The market remains highly optimistic in un-realizing what Under Armour is up against with the negative outlook behind the apparel and footwear industry. The company’s potential for growth falls within expanding internationally and further developing their brand recognition, but their track history of strong growth is entitled to risk moving forward in such a competitive environment.

U.S. Real Gross Domestic Product Gross Domestic Product (GDP) is a widely-used measure of economic growth that reflects spending, investments, and net exports. At the end of March, the third estimate for fourth quarter GDP was released and came in at 2.1%, which was slightly higher than first two releases of 1.9%1.

Placing GDP overall for 2016 at 1.6%, GDP pulled back by a percent in comparison to 2015 (2.6%) due to a drop in production output and a decrease in personal consumption2. GDP still hasn’t matched its healthy level of 5% since 20054. According to the Conference Board, forecasts indicate annual real GDP to be at 2.1% for 2017 and 2.3% in the following year3. Consumer spending makes up about 70% of GDP5 and will be bound to see strong results this year, which will help in meeting expectations. On a side note, the purchasing managers’ index (PMI) measures the health of the manufacturing sector and visually shown good intentions going forward. Manufacturing will keep up the pace with consumer spending and feed higher GDP growth as well. Consumer Spending As previously mentioned, consumer spending is the biggest component contributing to Gross Domestic Product5. Consumer spending tracks the expenditures of individuals and families on goods and services, which is defined into the following three categories: durable goods, non-durable goods, and services. Historically, services have been on top

at 66%, but still utilized as an important measure for the consumer discretionary sector. Non-durable goods has consistently accounted for 36% of the sector with retail spending5.

After the dip in 2009, spending has picked back up and grown strong leading up to $12.7 billion, which was reported for 20166.

When comparing consumer spending on a year over year basis, spending has increased the past three years after a pause in 2012 and 2013. Growth for 2014 through 2016 were as follows: 2.9%, 3.2%, and 2.7%, respectively. Consumer spending is on track with a linear growth pattern and we predict it to follow for the ongoing years. Considering the recent rate hike this past March and the possibility of two more this year, consumer spending can be negatively impacted. The Federal Reserve increasing interest rates can hurt consumer spending on larger items as borrowing costs go up7. Aside from this note, consumer spending will continue, but under more control through manipulation.

Executive Summary

Macroeconomic Outlook

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Consumer Confidence Index The Consumer Confidence Index is based off a consumer survey that reflects the nation’s optimism or pessimism towards the economy8. With higher confidence, more spending is expected to follow with a relatively strong outlook for the economy.

Source: Bloomberg The Conference Board releases consumer confidence on a monthly basis and the latest release return to levels seen in the year 2000. Consumer confidence for the month of March hit 125.6, beating consensus range of 110 – 118 and prior month’s results of 114.88. Consumer confidence surged since the start of the election season and continued to break through after President Donald Trump was elected. Many anticipated policy changes, which raised citizen’s expectations for promised higher economic growth. A good amount of uncertainty is factored into the recent consumer confidence results. As we push through this year, Trump failed to wring out enough votes on his new healthcare plan to replace Obama Care, which was said to occur during his first week in office. Seeing less change in policies are raising concerns for consumers being too confident, thus consumer confidence levels will soon be restored to less inflated levels in the near future. This drop won’t be significant as consumer confidence will remain strong pushing spending and building a healthier level of the economy. Retail Sales The past year, headlines have been targeting retail stores after declining sales and freed up real estate. With a seat at the table, the big discussion has pressed on issues with performance in the retail environment. As of April this year, there’s been a total of 8 retail chains that filed for bankruptcy. At this rate, numbers last seen in 2008 can appear in September later this year9.

This dramatic change can be explained by the shift in consumer habits with online shopping. Retail sales hiked back up coming in 2015, but then stumbled back close to levels seen throughout 201310. Monthly retail sales came in this February at 0.2% (ex-autos), which continued to follow an unfavorable trend in not correlating with recent consumer confidence reports11. Consumer confidence has been very high the past couple months and can very well be inflated with too much optimism. Currency Exchange Rates Businesses with international reach are constantly faced with foreign exchage rate effects. Companies with large amounts of revenue streams coming in from outside of the United States can place a damper on its gross take home amount to a certain extreme. Exchange rates can also be a determining factor in practice for importing or exporting more, which can potentially drive domestic sales. As the dollar becomes stronger, we are inclined to import products more as they appear cheaper.

Source: Bloomberg14

The US Dollar Index (DXY) compares the dollar to a baskets of currencies of its 6 common trade partners: the Euro, Japanese Yen, Canadian Dollar, British Pound, Swedish Krona, and Swiss Franc12. Reaching the end of December 2016, the index hit a 5-year all time high of 103.82. The strength of the dollar also absorbs a lot of its value from consumer’s take on the economy, or consumer confidence. Since confidence levels are its high, the US Dollar has been appreciating in value alongside the post election movement13.

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In a recent White House interview, President Trump mentioned our dollar is becoming too strong and implied that easing rate hikes would be more appropriate and beneficial in terms of stabilizing the Fed’s balance sheet13. With President Trump’s tax reform plan pushing domestic manufacturing, our exporting will be more attractive to other countries. Furthermore, our currency will fall to more respectable levels and boost sales from cheaper production. As Under Armour is in the testing phase of their domestic manufacturing, the currency movement and tax reform can greatly add pressure to following through with this opportunity. International sales is also an opportunity to expand upon and as domestic manufacturing becomes cheaper, exporting in general will see an increase. Consumer Price Index (CPI) The Consumer Price Index or CPI is one the best measures of inflation. It takes the weighted average prices of consumer goods and services, which include transportation, food, and medical care16. The consumer discretionary sector is directly impacted with effects of inflation as almost all consumer’s buying power is derived from excess cash they’re able to spend. With rising inflation, prices in the future will be expected to increase, thus purchasing power will decrease and spending volume will become less volatile.

Source: Bureau of Labor Statistics15 Over the past year, CPI broke through the 2.1 - 2.3% range signaling a concern for the Federal Reserve. Their target of 2% was overachieved and stepped in to increase the interest rate by 25 basis points this past December. As the Federal Reserve increases interest rates, it becomes more expensive to borrow, which helps in controlling the circulation of consumer spending. Coming into 2017, inflation was still sitting at 2.2 – 2.3%, which signaled an additional rate hike in March, putting inflation in line with our goal. President Trump and the Federal Reserve were intending for two more adjustments later this year, but with the dollar becoming stronger and inflation at our goal, they may have to step back and monitor how we all react. 2% inflation has been a strong goal for the Federal Reserve and we see this staying consistent with active oversight and enforcing rate hikes when plausible.

Industry Overview In 2016, the sportswear industry alone reeled in about $282.3 billion dollars in sales worldwide17. This segment of apparel and footwear is defined as the products enhancing active or athletic performance using various synthetic and petroleum based fabrics with incorporated technology. Athleisure wear or sportswear has been on a rising trend, until recently where the industry has been faced with a downturn in growth.

Looking at the overall landscape of the industry, sales took a major dip in 2014 - 2015. Projections moving forward show slim opportunities in the international space while North America will continue to be affected by the sharp decrease. Growth should be expected to pick up, but will stabilize and slowly depreciate moving past 2017. Industry Followers and Leaders

Source: Passport – Euromonitor International Looking across the spectrum of brand share in the sportswear industry, Nike and Adidas have earned their fair share of dominance in the market space. Under Armour is within the top five leading brands, but an incredible reach to climb if it were to successfully saturate the market like

1.21.41.61.82.02.22.4

Nov-13 Jun-14 Dec-14 Jul-15 Jan-16 Aug-16Mar-17 Sep-17

Consumer Price Index- United States

Industry Analysis

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Nike and Adidas have. The styles and materials are very common across different brands and can easily be manipulated, which stresses marketing and building brand loyalty. Aside from product quality and performance, price is another aspect pulling competition together in this industry. Considering how big Nike is, they have the ability to step in and sell at lower price points while still being more profitable. At times of variable demand, Nike matched their prices with Under Armour’s to interrupt consumers who thought their prices were too high. Within the retail environment, strong sales and margins are necessary to preserve an attractive floor space20, giving a competitive advantage to the leaders. A recent trend within the sportswear industry consists in taking a different approach in the retail environment that focuses on brand recognition and maximizing profits. Recent Developments & Trends

Apparel & Footwear Consumption

The past decade, apparel and footwear spending has been down half a percent. After 2008, consumer spending overall slowly recovered and continued to increase heading into 2017. During 2013, the portion of apparel and footwear spending started falling back down as consumers started spending more towards restaurant, leisure, and services18. Although on a downward trend, the percent of people exercising dramatically has increased, which may contribute more with sportswear attire in personal spending budgets. This will be discussed later on in the catalyst for growth section of the industry.

Direct-to-Consumer Channel Expansion

There’s been a substantial shift into online shopping, causing brands to shift gears into direct-to-consumer channels. Popularity and growth in e-commerce is on the rise, as consumers benefit from added convenience and minimal cost differences. Many brands are also investing in “brand focused” retail outlets and factory stores20. This approach is to help maintain brand awareness through physical presence and giving consumers an incentive to get a hold of exclusive products and discounts. A majority of wholesalers have cut back on revenue and even experienced heavy losses, which was seen with Spots Authority after filing for bankruptcy in mid-2016. Without wholesaler

intermediation, there will be more room for margins to grow and more control over the retail environment. In recent events, Under Armour opened their third Factory House store on April 13th of this year. The new store, located in Detroit, Michigan, offers the latest products, exclusive merchandise, and cheaper prices19. On top of that, the store has an upper scale setting and conveniently located down the street from Nike’s new Factory Store that was put up in Spring of last year.

Technology

Technology is constantly improving and being absorbed by the universe of consumers. Technology within the apparel and footwear industry has helped differentiate brands and cater to benefits sought by consumers. Innovating new technology into products are effective in sustaining growth and pushing product line extensions. Porter’s Five Forces Threat of New Entrants: Low

Entering the industry requires a significant amount of capital, both human and financial, which makes it very difficult to earn a share in the market. From different phases of product development to manufacturing, it can take years to build a solid foundation and customer base. With competition so high, new entrants who risk going into the market, if anything, target a niche category and slowly disperse into more product lines21. Yet again, this can take quite a bit of time.

Competitive Rivalry: High

There are many companies operating in the industry and constantly on the urge of further development. Some companies, in which, have been around from the start. Nike, founded in 1964, and Adidas, founded in 1954, are two companies that progressively built their brand from the ground up. These two brands have grown to become leaders in the industry and with aggressive marketing tactics, have been successful in creating strong competition and stressing solid reputation to reflect brand performance.

Bargaining Power of Suppliers: Low

As the majority of sportswear products are constructed from widely available resources, it’s common to see a range of suppliers that suit the needs of many of the competitors in the industry. Most suppliers don’t hold contractual agreements, so firms can easily proceed to work with another supplier. Larger firms have an advantage over competition in this area as they have the ability to lower costs when ordering in large quantities21. This opens up opportunity for more profit and flexibility in pricing structure.

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Threat of Substitutes: Low

The sportswear industry is well-established and subject to very little threat. As in the maturity stage, there are a low number of alternatives and the focus for companies is to reinforce their brand and generate a reasonable return. Sportswear products offer the necessary apparel, footwear, and accessories to withstand rigorous exercise conditions. Technology has been innovated to protect from sweat, odor, and control body temperature of different needs. Many of the major brands have signed deals with professional sport teams, which reinforces its effective performance and longevity. No threat of substitutes is in sight anytime soon.

Bargaining Power of Buyers: Moderate

The select number of players in the industry give consumers a moderate range to choose from. Some brands compete directly head to head, for example Nike and Under Armour. These two undergo fierce competition with price matching and offering similar products. Most brands on the market already keep up with the recent trends and product developments. Materials are more or less the same, so quality assurance is a big deciding factor into purchasing decisions. This can come along with experience, recommendations, or one’s overall view on the brand. “A brand lives inside the hearts and minds of the consumer”, meaning consumers develop a keen position in preferring one brand over another. This is created through company success in earning customer loyalty through offering quality products, differentiation, and unique marketing strategies that reinforce their brand. If a product is moderately or highly differentiated, prices can factor in a premium that consumers are willing to pay over others21.

Industry Catalysts for Growth & Change Disposable Income / Consumer Spending The consumer discretionary sector is strongly linked to disposable income and spending habits. Disposable income addresses what income is available to spend for individuals and households after taxes and obligations.

Source: FRED22

Disposable income has been breaking fresh all-time highs, leaving consumers at an advantage to be spending more. As previously touched on in the macroeconomic outlook,

consumer spending has also been breaking new levels, although a decreasing portion of personal consumption falls within apparel and footwear. Consumers can easily afford purchasing sportswear products, but will come with stronger attitudes and shift in habits, which can potentially start with looking into exercising.

Club/Gym Memberships Gym memberships in the US are on the rise and have grown roughly 34% the past 10 years. 55 million health club memberships were reported in 2015 with potential room for growth still23. The number of health club locations have gone up as well, opening 5,000 new locations in 4 years, leaving us with 36,000 total locations ending 201524.

Exercising and physical activity has been a more important attribute to everyone’s daily routines, accommodating the rising memberships at health clubs. The benefits of acquiring this healthier lifestyle has been a wide spread movement and seen significant results hitting 55% growth in 201623.

With the fitness industry continuing to grow, athleisure wear and sportswear attire can be a key essential in consumer’s wardrobe for exercising or casual comfort. If apparel and footwear consumption were to see an increase, the sportswear environment will also become more competitive and brands with a big share in the market will benefit the most.

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Product Break Down

Apparel, Footwear, & Accessories Under Armour aims to market its products to men, women, and children, demanding a variety of fits. They intertwine technology to enhance performance that take into account different applications to maintain and control body temperature and perspiration. These are incorporated into accessories as well, ranging from headgear, gloves, and bags. For the year ending December 31, 2016, apparel accounted for 67% of total net revenues, while footwear and accessories accounted for 21% and 8%. Looking at prior years, footwear is building up larger portions of total revenues, while apparel on the other hand is inversely cutting off. Apparel is one of their product categories with the highest margin and if Under Armour were to see footwear growing more, their cost of goods sold will be raised down the line. Growth within the different product categories can be seen within revenue decomposition of the model. Connected Fitness Under Armour has successfully merged tested technology to track real time personal data and digital advertising through their licensed and subscription-based platforms. MapMyFitness, Endomondo, UA Record App, and MyFitnessPal are interactive solutions to enhance individual’s steps in a healthy lifestyle. Endomondo and MyFitnessPal were acquired for $475 million in early 2015. With millions of active users, 80% of users of Edomondo are international and Under Armour anticipates using this in their marketing strategy efforts to increase share25. The connected fitness segments accounted for 2% of 2016’s sales and expected to grow with capital expenditure plans in 2017. License Agreements Under Armour entered into a 10-year agreement with Major-League Baseball (MLB), starting 2020, to supply on-field uniforms, performance apparel, and accessories for all 30 teams. This is Under Amour’s first deal where they will be sourcing their performance uniforms for an entire league26. Aside from this huge opportunity, they also work with the NFL, NBA, and from small to college level sport teams. Marketing Strategy Under Armour strives in creating a successful marketing strategy through many approaches. Under Armour seeks out and targets sports teams of all levels for outfit agreements and sponsorships. They also single out rising stars and introduce signature athlete products, such as NBA player, Stephen Curry and his shoe line. They also

participate in marketing campaigns, like the recent PGA Store Campaign with Jordan Spieth that attempts to advertise Under Armour’s brand through merchandise giveaway27. Under Armour has progressively built their portfolio in terms of professional sport leagues. Under their agreements, Under Armour incorporates sports marketing while acting as a supplier for the NFL, NBA, and now MLB. They also have been recognizing the rising popularity in soccer and rugby in foreign nations. Although their coverage is small, breaking into this international space can create bigger opportunities down the road. Analysis of Recent Earnings Fourth quarter results were released on January 31 of this year and analysts on the street were off from anticipated revenue and earnings forecasts. Revenues came in at $1.31 billion for the quarter, which was $100 million shy from analyst’s expectations of $1.41 billion. Earnings for the quarter also came in below at 23 cents per share as opposed to the 25 cents per share analysts were estimating. After the earnings release, Under Armour’s stock dropped down 25% and raised concerns in terms of their future potential28. Target prices of $40 soon became $20 in a matter of days. Under Armour has had a tough year and it’s worth noting the announcement of their CFO, Chip Molloy, stepping down during the earnings call29. No other information was disclosed other than leaving for personal reasons. Just weeks after, Under Armour’s credit quality was reevaluated and resulted in a move into junk territory (BB+).

Source: Nasdaq.com As analysts dug in deeper, the underlying factors evolve in and around the brand itself, where some may be out of Under Armour’s control. Other companies in the industry are experiencing similar performance issues, such as Nike and Lululemon, who both had mixed earnings reports. Both didn’t come out with strong revenues to meet analysts’ expectations and were also impacted by the lagging retail environment as well.

Company Analysis

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Competitive Environment Out of all the companies in the industry, only a selected few have made it to the top, which include Nike, Adidas, Under Armour, and Lululemon with special consideration.

The data above reflects values from 2016. Under Armour’s selling, general, and administrative expense (SGA) has grown tremendously the past 5 years. A big portion of this includes their marketing efforts, which are well needed to compete with Nike. Both Under Armour and Nike provide very similar style clothing, while Lululemon on the other hand, started out as a yoga clothing brand in 1998 that’s grown on a separate path from main stream competition. They expanded product lines that differentiated from what other competitors had to offer, which helped in creating a social status to their brand. As demand flooded in, Lululemon was at an advantage with marked up pricing, giving high gross profit and EBITDA margins. Athleta Inc., a brand of Gap that was acquired in 2008, shares similar values and product lines to Lululemon, but only target women for their customers. Both Under Armour and Lululemon are going to see heavy investment within their marketing divisions to squeeze for bigger shares in the market. All this can be put at risk with an industry that’s been slowing down, even in future outlooks of analysts. More valuation metrics and analysis can be seen in the relative valuation in the model section. Catalysts for Growth/Change International Expansion Under Armour currently takes in 15.4% of its sales from international customers. In order to be considered a global brand, more than a third of its sales should come from overseas. At this stage, this lack in international presence leaves Under Armour out of opportunity for growth with not much room left considering the industry overview in terms of revenue growth. Comparing to the competition, Nike, Adidas, and Lululemon currently bring in over 50% of their sales from international markets. Under Armour has seen to struggle in expanding their footprint overseas. Recently this year, a long-developed relationship with Real Madrid Soccer and Adidas was up for renewal. Under Armour was highlighted in the stages of negotiating the ~$130 million-dollar deal. This sparked headlines in being the start to their future success in the international space. Soccer all over the world has become a rising sport in popularity and would be beneficial to add to Under

Armour’s license agreements. Weeks later, Under Armour retracted from the deal, leaving Adidas to continue what they landed in 201234. Domestic Manufacturing and Distribution Costs Earlier this year, CEO Kevin Plank, along with other corporate executives, met with President Trump to discuss the proposed tax reform. They discussed the move towards domestic manufacturing to help in generating economic growth within the United States as well as prepare for future costly expenses down the line with outsourced manufacturers. Under Armour has been testing limited production runs within their new facility in Baltimore. Their “made in US” gear overall gives them more control of their overhead costs and the production process. They found working with the design team took less time and the costs were neutral as opposed to overseas. The production process is more efficient and even has the freedom to test market new designs in select stores. They also have state of the art 3-D scanning machines to improve their athletic fits that can attract customers with what’s ahead30. The only issue is heavy amount of spending will be required in building out larger facilities to meet larger capacity requirements, as right now the factory can only handle such a limited amount. Product Differentiation/ New Product Development To continually grow in the sportswear industry, innovating and launching new products is crucial in keeping the shopping experience exciting and customers returning. This year, Under Armour launched a “Recovery Sleepwear” line that promotes faster muscle recovery and better sleep. An idea that came about from professional NFL Player, Tom Brady, who worked with Under Armour in the product’s development phase and advertising31. This new segment in technology was tested in an independent study and held positive results. The past year, they’ve been slowly introducing their lifestyle and street wear product line. Anywhere from jeans, jackets, to casual t-shirts, Under Armour has been eager to reach into more segments with their brand. Aside from new apparel releases, Under Armour announced their “SuperVent Project” with The Rock, Dwayne Johnson. Upon release, the shoe sold out instantly and so far became Under Armour’s fastest selling product of 201732. SWOT Analysis Strengths A great strength to point out is Under Armour’s connections with sponsored athletes and sports teams. As discussed within their marketing strategy, athletes are a point of attraction for consumers in the advertising process and overall help in reinforcing Under Armour’s brand. Under Armour successfully created strong relationships

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with Jordan Speith, Stephan Curry, Tom Brady, and more. As far as recent pipeline opportunities, Under Armour currently works with parts of the NBA and NFL, but starting soon will be with the entire MLB league in 2020. They’re also at a competitive advantage after acquiring popular fitness technology platforms. This carves Under Armour some dominance in a niche category that other big competitors, like Nike, can have trouble competing with. As seen before, Under Armour has had a strong history of growth, especially for a fairly new company in this competitive industry. The only question that remains is if it will be sustainable.

Weaknesses In order to compete with the other big players in the game, Under Armour has to spend a heavy amount towards their marketing and advertising, which still gets beaten to the punch by Nike33. Stronger tactics in promoting Under Armour’s brand will be essential in gaining more customers, thus complementing with more market share. It’s only a matter of time and the right execution before Under Armour can be well on their way to continue attracting consumers to their brand, but recently problems have lied within in the industry as a start.

Opportunities The shift into e-commerce has been overwhelming physical retail establishments, including malls. With the number of wholesalers working with Under Armour are dropping off, the direct to consumer channel is picking up. Of the total net revenues in 2016, 65% were contributed from wholesalers and 31% from direct-to-consumer compared to 2012 with 69% and 29% respectively. With the increase in popularity, Under Armour should take advantage in positions where they can reach their product to consumers with the least amount of intermediation. It’s surely but slowly taking into effect with opening more brand house stores and will see a bigger difference with the next couple years. Another opportunity for Under Armour is focusing on building their international reach. Less than a sixth (<20%) of their sales are from outside the United States. As seen with the industry overview, there’s still potential for foreign nations to be tapped into to drive the market, but Under Armour’s low market share can hinder a great impact in the unsteady sportswear environment. The only thing ahead of Under Armour is, once again, Nike and Adidas who already have strong presence outside the U.S and are leading the industry. Threats An unavoidable threat, seen in almost every industry, is competition. Competition should be monitored diligently within different price moves, new products, and advertising. Consistently monitoring demand and price drops can affect the demand of Under Armour products, so it’s important to consider adjusting prices with competitors.

Consumer spending habits is also a continued threat. As we saw the portion of expenditures towards apparel and footwear are declining, it’s reasonable to be more aware in adapting to different changes. If a bigger move away from spending within the industry remains, there will be a squeeze in volume and a bigger force of competition. Investment Positives • Currently trading around its 52 week low and buying

into the dip can maximize return on a strong futuristic outlook

• MLB 10-year license agreement for all 30 teams added into their portfolio, which will take into effect starting 2020

• Following through with prospective domestic manufacturing strategy can open a line of opportunity for sparking innovation trends in the manufacturing and sportswear industry

• Newly added member to the board of executives bringing in years of experience and aspire effective ideas in exploring international markets

Investment Negatives • Downward trend in proceeds from consumer spending

towards apparel and footwear, thus affecting the sportswear industry

• Potential international deal with Real Madrid Soccer fell through to Adidas

• Retail environment remains super competitive and lacking strong performance

To arrive out my stock price of $17.44, I initially considered the extensive research and analysis performed on the overall economy and sportswear industry. I also considered any catalysts that were subject to drive or change the forecast of Under Armour and its competition. I incorporated three different valuation methods to arrive at my proposal for a sell rating with an intrinsic stock price below the current trading price of $19.21. The models used were a Discounted Cash Flow model (DCF), Economic Profit model (EP), and relative valuation using comparable companies. I believe the DCF model is the most accurate valuation method used. It considers Under Armour’s realized potential and factors in the negative environment they operate in. I forecasted out a long time horizon of ten years to display the diminishing value of their athletic brand.

Valuation Analysis

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Revenue Growth Management’s guidance is expecting revenues to increase by 11 - 12% for 2017. This estimates total net revenues to be around $5.4 billion for the year. Reflecting back upon the industry overview, North America as well as the rest of the world is expected to see another slowdown period of growth for the next couple years. Under Armour has only 2.3% share in the sportswear industry and not enough international presence to make a significant return aligned with industry growth forecasts. Moving on, I see Under Armour’s revenue growth decreasing, putting the CAGR for the forecasted 10 years at 6.3%. Cost of Goods Sold as Percent of Sales Cost of goods sold consists primary of product costs, freight costs, handling costs, and a limited amount to licenses and Connected Fitness segments. Cost of goods sold has been volatile due to the effects of outsourced manufacturing and logistics. Costs are expected to increase with footwear becoming a bigger portion of revenues. Footwear costs are higher than the apparel and accessories segments. If domestic manufacturing is put in place for producing future products, it’ll have a minimal affect according to their results in many test runs they performed this year. With the direct-to-consumer channel expanding, many wholesalers will be cut out of the mix, creating more room and opportunity for profit. Throughout the upcoming years, Under Armour will be revamping their cost structure, which will also be reflected into the model with an initial jump at 50.5% in 2017 then slowly coming down to 49.5% in the terminal year. Selling, General, & Administrative (SGA) The selling, general, and administrative expense is primarily made up of costs relating to marketing, selling, product development, and supply chain. Marketing costs for 2016 increased by $59.7 million to $477.5 million. This increase was derived from sponsorships, retail marketing campaigns, and marketing for international business growth. Another factor that increased SG&A expense for 2016 were liquidation expenses from the bankruptcy of Sport Authority, who was a top wholesale customer. Looking forward for 2017, Under Armour will continue to see rising costs in their marketing department in order to stay on track with the competitive environment. Recently this year, Under Armour took on board their first Chief Innovation Officer. Clay Dean, from General Motors Co., will be in charge of aligning Under Armour’s global strategy and connecting the design, marketing, and product management teams. SG&A Expense is forecasted out to increase as plans for international expansion start to become executed, but will become more relaxed as their efforts aren’t as efficient.

Capital Expenditures Management guidance is expecting to spend around $400m in capital expenditures for 2017 alone. This will go towards expanding their Direct-to-Consumer channel, improving the SAP Platform, and investments in operating real estate (pg. 38 of 2016 filed 10-K). Capital expenditures for property, plant, and equipment have increased the past two years, with a large portion coming from recent acquisitions and additions to Connect Fitness in 2015. Capital expenditures for PPE as a percent of total net revenues were 3.5% and 8% for 2015 and 2016. Earlier this year, they followed through with a business investment that consisted of the new brand house store in Detroit, Michigan that opened on April 13th. In line with management’s forward outlook, I see Under Armour’s capital expenditures following at 7% for the next couple years from pushing development into their technology platforms and domestic facilities. PPE capital expenditures for the next 5 years are as follows:

EBIT and Net Income Net income is expected to decrease in 2017 after factoring in anticipated costs of goods sold and SGA expense to rise. Management predicts operating income to pull down to $320 million, but I see it just a tad above at around $332 million in 2017. EBIT or operating income, will rise along with net income going out to 2026. By then, EBIT should reach or $1,271 million or 12.8% and Net Income at 801,239 (8%). Margins EBITDA Margin EBITDA is defined as Earnings Before Interest, Tax, Depreciation, and Amortization. Looking in previous years, margins have decreased going from 13.8% in 2014 to 11.7% in 2016. This has been due to the increase in cost of goods sold as a percent of sales, as well as SGA slightly increasing. In terms of Under Armour’s future outlook, EBITDA margins will fall in 2017 after cost of goods and SGA increasing. Heading into 2026, margins should revive back to 13.5%, but just below levels that were seen back in 2014.

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Gross Profit Margin Gross Profit Margin is a measure of gross profit as of percent of sales. Gross profit is calculated by subtracting cost of goods sold from total net revenues. According to management’s guidance, gross margins are expected to decrease due to foreign currency affects and changes in the sales mix, such as the move into more footwear sales. I except gross margins to grow from 46.4% in 2016 to 49.8% nearing the end of 2026. Weighted Average Cost of Capital (WACC) I used the Weighted Average Cost of Capital (WACC) in order to discount the unlevered free cash flow in the DCF model and assist in calculating Economic Profit. Under Armour currently has short term and long term debt of around $817 million and present value of operating lease payments totaling to $1 billion. This amounted to the 18% of total debt. For the market value of equity, I took the price and multiplied it by the number of shares outstanding. This is essentially the value on the stock market, or market capitalization. Arriving at an 82% weight for equity, I incorporated the cost of debt and the cost of equity, which led me to my calculation in 7.36% for the WACC. Cost of Debt

Pre-Tax Cost of Debt: 5.61% Marginal Tax Rate: 32.68%

Under Armour’s debt rating was recently downgraded weeks after their fourth quarter earnings report. As of this February, their rating went from BBB- to BB+, according to Standard & Poor’s Rating Agency. With only one corporate bond publicly traded, I referenced Bloomberg in finding a 30-year cost of debt for the consumer discretionary sector. To broaden my search in finding a stronger number, I used a range of BB- to BB+. I arrived at 5.61% for the pretax cost of debt, in which I used calculate the debt portion of WACC. This was later multiplied by the marginal tax rate since interest is tax deductible. Cost of Equity

Raw Beta: 1.193 Risk-Free Rate: 2.99%

To determine the cost of equity, I utilized the capital asset pricing model (CAPM). I integrated a raw beta of 1.93 that was sourced from Bloomberg and the current 30-year risk-free rate as well. My equity risk premium of 4.33% was derived from estimates from popular scholar and NYU professor, Aswath Damodaran. I calculated out an 8.2% cost of equity. Valuation Models Discounted Cash Flow & Economic Profit Model The DCF and EP model are the strongest of the three valuation approaches used. They incorporate the logical

assumptions built into the three forecasted financial statements that helped in arriving at my stock price for Under Armour. I forecasted out ten years since Under Armour’s revenue was growing relatively high as of 2016 (20 - 30% range). Under Armour has a limited amount of space to grow in the sportswear market and will see their growth take a fall going into 2026. To find free cash flow, I calculated net operating profit less adjusted taxes or NOPLAT, which can be seen on the “Drivers” page. The continuing value (CV) growth rates for NOPLAT and ROIC were 2.5% and 13%. I assumed 2.5% with consensus on GDP expectations the upcoming years. A strong CV growth rate is typically within the 2 – 4% range, but with my prediction against Under Armour, I chose a more stabilized rate backed by GDP estimates. ROIC was calculated by taking the last years NOPLAT divided by the beginning invested capital. After calculating the terminal value and discounting the free cash flow, I arrived at an enterprise value of $9.3 billion. Then, took out debt and any other non-equity claims to find the value of equity. After dividing by shares outstanding, I adjusted the intrinsic stock price to the value today, giving a the price of $17.44. Relative Valuation/ Comparable Analysis To compare Under Armour with the other brands in the apparel and footwear industry, I conducted a comparable analysis with other competing companies that are publicly traded. Among the three tables, I compared the market values, multiples, and operating metrics for each company. Right off hand, Adidas and Nike are largest of the group, having the biggest market cap and enterprise value. I implemented Enterprise Value multiples as they are widely used and easier to compare in such a capital intense industry. EV/EBITDA doesn’t take into account capital structuring and depreciation effects, which helps in arriving at a stronger and universal earnings number for comparison. I also included EV/Sales to represent how much revenue the company is generating relative to the company value. The Price to earnings (P/E) ratio takes the price of a stock and divides it by the company’s earning on a per share basis. The main issue with the P/E ratio is its volatility. The price of a share on the stock market is based off market expectations in performance and potential. This approach hinders away from core value drivers of a business, such as cash flow, which is why enterprise values are worth more looking in to. When analyzing the operations of each company, I first examined their revenue. Again, Nike and Adidas’ power is displayed here, but on a trending basis, Under Armour has grown the most in sales when looking at their past 5 year compound annual growth rate (CAGR). Leading behind were Lululemon (LULU) and Skechers (SKX). In terms of margins, it’s worth noting that Lululemon’s EBITDA

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margin is the highest amongst its peers, which can be due to their higher prices and product differentiation. Under Armour is still negative free cash flow (FCF), which seems odd when seeing a positive 4-10% FCF range with comparables, but can easily be explained from their capital expenditures and SGA costs seen earlier. Then, I filtered out a mean and median number that can be used to help in determining Under Armour’s implied value (UAA wasn’t incorporated in the mean and median calculations). Under Armour is well above its implied enterprise value for 2016, which is a strong sign. Their expected EPS of 43 cents per share in 2017 implies their P/E ratio to be at 44.21 times earnings, which drops down from its current ratio. Sensitivity Analysis Conducting the sensitivity analysis gives the freedom to test different constraints used throughout the model and predict a range of stock prices. In other words, a best case or worst case scenario. It’s good to test and visualize how far off my expectations can be if Under Armour were to outperform. CV Growth of NOPLAT against the WACC The rate at which NOPLAT is growing in the terminal year (2.5%) can be extremely sensitive to the continuing value driving my stock price. If held constant, slight changes in the WACC can accommodate a variable outcome. If more debt is issued to help pay future capital expenditures, their cost of capital can increase, which can further reinforce my “Sell” rating. If WACC is held constant and their operations grow stronger, Under Armour’s stock price can indicate upside potential.

CV growth of ROIC and WACC Under Armour is expected to see a decreasing Return On Invested Capital (ROIC) over the forecast period. Even if their return on invested capital increases, they would need a lower cost of capital to drive a higher price than they’re trading at. Leaving off at 19% in 2016, my model implies a ROIC of 13% for 2026 and beyond. Beta and Risk-Free Rate The beta of a stock takes into consideration the systematic risk in respect to the performance of the market. The 30-year Treasury Bond was used as my risk-free rate and is reasonably sensitive if beta were to decrease. Decreasing the beta, along with a drop in the risk free rate, can break into an area for a big price move. Under Armour’s beta according to Bloomberg, has consistently been sitting at 1.193 across different time adjustments, so I feel strong in its risk relative to the overall market.

Beta and Equity Risk Premium There are a lot of ways to calculate the equity risk premium, which ultimately comes down to preference. I chose my equity risk premium on behalf of a popular research scholar that reports monthly premiums, but others may come out higher or lower. As the equity risk premium gets smaller, a lower cost of capital will follow along with a higher stock price. Many analysts refer to the equity risk premium reported from Damodaran, which is why I justified it into my assumptions.

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Important Disclaimer This report was created by students enrolled in the Security Analysis (FIN:4250) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

Under ArmourRevenue Decomposition

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

Geographic RegionNorth America 2,796,374 3,455,737 4,005,314 4,433,734 4,797,734 5,043,066 5,397,820 5,838,620 6,176,418 6,459,237 6,826,758 7,034,623 7,274,127

International 268,771 454,161 740,984 865,119 1,079,490 1,375,382 1,562,527 1,690,127 1,894,102 2,094,888 2,214,084 2,409,118 2,491,139

Connected Fitness 19,225 53,415 80,447 108,140 119,943 130,989 142,048 153,648 164,704 174,574 184,507 192,729 199,291

Total Net Revenues 3,084,370 3,963,313 4,825,335 5,406,992 5,997,168 6,549,437 7,102,395 7,682,395 8,235,224 8,728,698 9,225,349 9,636,470 9,964,557

Product CategoryApparel 2,291,520 2,801,062 3,229,142 3,535,910 3,836,463 4,105,015 4,392,366 4,699,832 4,981,822 5,230,913 5,492,459 5,712,157 5,883,522

Footwear 490,987 677,744 1,010,693 1,212,832 1,431,141 1,645,812 1,843,310 2,046,074 2,250,681 2,430,736 2,600,888 2,730,932 2,840,169

Accessories 275,409 346,885 406,614 447,275 487,530 526,533 566,023 605,644 641,983 677,292 714,543 750,270 772,778

Total net sales 2,997,916 3,825,691 4,646,449 5,196,017 5,755,134 6,277,360 6,801,699 7,351,550 7,874,486 8,338,941 8,807,889 9,193,359 9,496,469 Liscense revenues 67,229 84,207 99,849 112,829 125,241 137,765 154,296 171,269 188,396 205,352 223,833 241,740 258,662

Connected Fitness 19,225 53,415 80,447 98,145 116,793 134,312 146,400 159,576 172,342 184,406 193,626 201,371 209,426

Total Net Revenues 3,084,370 3,963,313 4,825,335 5,406,992 5,997,168 6,549,437 7,102,395 7,682,395 8,235,224 8,728,698 9,225,349 9,636,470 9,964,557

Growth RatesGeographic Region:

North America 27.5% 23.6% 15.9% 10.7% 8.2% 5.1% 7.0% 8.2% 5.8% 4.6% 5.7% 3.0% 3.4%

International 95.8% 69.0% 63.2% 16.8% 24.8% 27.4% 13.6% 8.2% 12.1% 10.6% 5.7% 8.8% 3.4%

Connected Fitness 1700.1% 177.8% 50.6% 33.9% 11.3% 11.7% 11.1% 9.9% 8.6% 8.3% 7.1% 6.2% 4.6%

Total Net Revenues 32.3% 28.5% 21.8% 12.1% 10.9% 9.2% 8.4% 8.2% 7.2% 6.0% 5.7% 4.5% 3.4%

Product Category:Apparel 30.0% 22.2% 15.3% 9.5% 8.5% 7.0% 7.0% 7.0% 6.0% 5.0% 5.0% 4.0% 3.0%

Footwear 64.3% 38.0% 49.1% 20.0% 18.0% 15.0% 12.0% 11.0% 10.0% 8.0% 7.0% 5.0% 4.0%

Accessories 27.4% 26.0% 17.2% 10.0% 9.0% 8.0% 7.5% 7.0% 6.0% 5.5% 5.5% 5.0% 3.0%

Net Sales 31.7% 27.6% 21.5% 11.8% 10.8% 9.1% 8.4% 8.1% 7.1% 5.9% 5.6% 4.4% 3.3%Liscense revenues 24.7% 25.3% 18.6% 13.0% 11.0% 10.0% 12.0% 11.0% 10.0% 9.0% 9.0% 8.0% 7.0%

Connected Fitness 1700.1% 177.8% 50.6% 22.0% 19.0% 15.0% 9.0% 9.0% 8.0% 7.0% 5.0% 4.0% 4.0%

Total Net Revenues 32.3% 28.5% 21.8% 12.1% 10.9% 9.2% 8.4% 8.2% 7.2% 6.0% 5.7% 4.5% 3.4%

% of Total Net Reveues

North America 91% 87% 83% 82% 80% 77% 76% 76% 75% 74% 74% 73% 73%

International 9% 11% 15% 16% 18% 21% 22% 22% 23% 24% 24% 25% 25%

Connected Fitness 1% 1% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%

Total Net Revenues 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Apparel 74% 71% 67% 65% 64% 63% 62% 61% 60% 60% 60% 59% 59%

Footwear 16% 17% 21% 22% 24% 25% 26% 27% 27% 28% 28% 28% 29%

Accessories 9% 9% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%

Total net sales 97% 97% 96% 96% 96% 96% 96% 96% 96% 96% 95% 95% 95%Liscense revenues 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 3% 3%

Connected Fitness 1% 1% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%

Total Net Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Under ArmourBalance Sheet

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

AssetsCurrent Assets: Cash & cash equivalents 593,175 129,852 250,470 149,821 74,348 41,921 252,373 257,252 433,891 832,251 1,331,070 1,923,405 2,640,257

Accounts receivable, net 279,835 433,638 622,685 593,300 696,044 774,657 814,571 893,796 938,816 986,343 1,033,239 1,060,012 1,076,172

Inventories 536,714 783,031 917,491 1,058,148 1,173,646 1,269,281 1,340,222 1,435,456 1,538,752 1,571,166 1,660,563 1,717,219 1,726,359

Prepaid expenses & other current assets 87,177 152,242 174,507 189,245 209,901 229,230 241,481 261,201 263,527 279,318 276,760 289,094 298,937

Deferred income taxes 52,498 - - - - - - - - - - - -

Total current assets 1,549,399 1,498,763 1,965,153 1,990,513 2,153,938 2,315,090 2,648,647 2,847,704 3,174,985 3,669,078 4,301,632 4,989,729 5,741,725 Subtotal property & equipment 522,376 831,764 1,201,267 1,601,267 2,021,069 2,446,782 2,872,926 3,333,870 3,786,807 4,135,955 4,412,715 4,605,445 4,804,736

Accumulated depreciation & amortization 216,812 293,233 397,056 541,056 692,185 845,441 998,853 1,164,793 1,327,850 1,453,544 1,553,177 1,622,560 1,694,305

Property & equipment, net 305,564 538,531 804,211 1,060,211 1,328,884 1,601,341 1,874,073 2,169,077 2,458,957 2,682,411 2,859,538 2,982,885 3,110,431

Goodwill 123,256 585,181 563,591 563,591 563,591 563,591 563,591 563,591 563,591 563,591 563,591 563,591 563,591

Intangible assets, net 26,230 75,686 64,310 53,801 44,455 35,215 28,014 22,696 18,611 15,261 12,514 10,261 8,414

Deferred income taxes 33,570 92,157 136,862 151,396 167,921 183,384 177,560 192,060 164,704 174,574 138,380 144,547 149,468

Other long term assets 57,064 78,582 110,204 115,034 123,336 134,929 149,304 163,332 172,486 182,246 193,193 202,458 209,326

Total assets 2,095,083 2,868,900 3,644,331 3,934,547 4,382,125 4,833,549 5,441,189 5,958,460 6,553,334 7,287,161 8,068,848 8,893,471 9,782,957

Liabilities & Stockholders' EquityCurrent Liabilities: Accounts payable 210,432 200,460 409,679 445,536 494,167 517,733 561,444 581,941 623,818 654,652 668,838 667,807 690,544

Accrued expenses 147,681 192,935 208,750 232,501 257,878 281,626 298,301 322,661 337,644 349,148 369,014 375,822 388,618

Current maturities of long term debt 28,951 42,000 27,000 27,000 63,000 25,000 86,250 38,412 41,176 43,643 46,127 38,546 39,858

Other current liabilities 34,563 43,415 40,387 54,070 59,972 65,494 71,024 76,824 82,352 87,287 92,253 96,365 99,646

Total current liabilities 421,627 478,810 685,816 759,107 875,017 889,853 1,017,019 1,019,838 1,084,991 1,134,731 1,176,232 1,178,540 1,218,665 Long term debt, net of current maturities 255,250 352,000 790,388 797,054 868,993 982,199 1,089,091 1,150,980 1,182,422 1,266,329 1,318,526 1,366,310 1,414,431

Revolving credit facility, long term - 275,000 - - - - - - - - - - -

Other long term liabilities 67,906 94,868 137,227 137,227 137,227 137,227 137,227 137,227 137,227 137,227 137,227 137,227 137,227

Total liabilities 744,783 1,200,678 1,613,431 1,693,387 1,881,237 2,009,279 2,243,337 2,308,045 2,404,640 2,538,287 2,631,985 2,682,077 2,770,323

Stockholders' Equity: Additional paid-in capital 508,421 636,702 823,629 842,091 860,554 879,016 897,479 915,941 915,941 915,941 915,941 915,941 915,941

Retained earnings 856,687 1,076,533 1,259,414 1,451,211 1,692,478 1,997,396 2,352,515 2,786,617 3,284,896 3,885,076 4,573,065 5,347,596 6,148,835

Accumulated other comprehensive income (lo (14,808) (45,013) (52,143) (52,143) (52,143) (52,143) (52,143) (52,143) (52,143) (52,143) (52,143) (52,143) (52,143)

Total stockholders' equity (deficit) 1,350,300 1,668,222 2,030,900 2,241,159 2,500,889 2,824,270 3,197,851 3,650,415 4,148,694 4,748,874 5,436,864 6,211,394 7,012,633

Total liabilities & Stockholders' Equity 2,095,083 2,868,900 3,644,331 3,934,547 4,382,125 4,833,549 5,441,189 5,958,460 6,553,334 7,287,161 8,068,848 8,893,471 9,782,957

Under ArmourIncome Statement

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

Net Sales 2,997,932 3,825,691 4,646,449 5,196,017 5,755,134 6,277,360 6,801,699 7,351,550 7,874,486 8,338,941 8,807,889 9,193,359 9,496,469

License & Other Revenues 86,438 137,622 178,886 210,975 242,034 272,077 300,696 330,845 360,738 389,758 417,459 443,111 468,088

Net revenues 3,084,370 3,963,313 4,825,335 5,406,992 5,997,168 6,549,437 7,102,395 7,682,395 8,235,224 8,728,698 9,225,349 9,636,470 9,964,557 Cost of Goods Sold 1,500,071 1,956,826 2,439,954 2,784,601 3,088,541 3,340,213 3,622,222 3,879,610 4,158,788 4,364,349 4,612,674 4,770,053 4,932,456

Depreciation and Amortization 72,093 100,940 144,770 154,509 160,475 162,497 160,613 171,258 167,143 129,043 102,381 71,635 73,592

Gross profit 1,512,206 1,905,547 2,240,611 2,467,882 2,748,152 3,046,727 3,319,561 3,631,528 3,909,293 4,235,306 4,510,294 4,794,782 4,958,509 Selling, General & Administrative Expenses 1,158,251 1,497,000 1,823,140 2,135,762 2,338,895 2,537,907 2,727,320 2,919,310 3,104,680 3,273,262 3,413,379 3,565,494 3,686,886

Income (loss) from operations 353,955 408,547 417,471 332,120 409,256 508,820 592,241 712,218 804,614 962,044 1,096,915 1,229,288 1,271,623 Interest Income (Expense), Net (5,335) (14,628) (26,434) (39,555) (41,940) (45,324) (52,890) (53,523) (48,944) (52,399) (54,586) (56,194) (58,172)

Other income (expense), net (6,410) (7,234) (2,755) (2,755) (2,755) (2,755) (2,755) (2,755) (2,755) (2,755) (2,755) (2,755) (2,755)

Income (loss) before income taxes 342,210 386,685 388,282 289,811 364,562 460,741 536,596 655,940 752,915 906,890 1,039,574 1,170,339 1,210,697

Provision for income taxes 134,168 154,112 131,303 98,014 123,295 155,823 181,477 221,839 254,636 306,710 351,584 395,809 409,458

Net income 208,042 232,573 256,979 191,797 241,267 304,919 355,119 434,101 498,279 600,180 687,990 774,530 801,239

Weighted average common shares outstanding - b 426,454 430,996 436,330 438,876 441,422 443,967 446,513 449,059 449,059 449,059 449,059 449,059 449,059

Year end common shares outstanding 427,792 432,193 438,439 441,422 443,967 446,513 449,059 449,059 449,059 449,059 449,059 449,059 449,059

Basic Earnings Per Share (EPS) - Class A & B 0.49 0.54 0.45 0.43 0.54 0.68 0.79 0.97 1.11 1.34 1.53 1.72 1.78

Under ArmourCash Flow Statement

Fiscal Years Ending Dec. 31 2014 2015 2016

Cash flows from Operating ActivitiesNet income 208,042 232,573 256,979

Depreciation & amortization 72,093 100,940 144,770

Unrealized foreign currency exchange rate losses (gains) 11,739 33,359 12,627

Loss (gain) on disposal of property & equipment 261 549 1,580

Stock-based compensation 50,812 60,376 46,149

Gain on bargain purchase of corporate headquarters - - -

Deferred income taxes (17,584) (4,426) (43,004)

Changes in reserves for doubtful accounts, returns, discounts & inventories 31,350 40,391 70,188

Accounts receivable (101,057) (191,876) (249,853)

Inventories (84,658) (278,524) (148,055)

Prepaid expenses & other assets (33,345) (76,476) (25,284)

Accounts payable 49,137 (22,583) 202,446

Accrued expenses & other liabilities 28,856 64,126 52,656

Income taxes payable & receivable 3,387 (2,533) (16,712)

Net cash flows from operating activities 219,033 (44,104) 304,487

Cash flows from Investing Activities Purchases of property & equipment (140,528) (298,928) (386,746)

Purchases of businesses, net (10,924) (539,460) -

Purchases of available-for-sale securities - (103,144) (24,230)

Sale of available-for-sale securities - 96,610 30,712

Purchase of corporate headquarters & related expenditures - - -

Purchases of other assets (860) (2,553) (875)

Purchase of long term investment - - -

Change in loans receivable - - -

Change in restricted cash - - -

Net cash flows from investing activities (152,312) (847,475) (381,139)

Cash flows from Financing Activities Proceeds from revolving credit facility - 500,000 -

Payments on revolving credit facility (100,000) (225,000) -

Proceeds from term loan 250,000 150,000 -

Payments on term loans (13,750) (36,250) -

Proceeds from long term debt - - -

Payments on long term debt (4,972) (3,952) -

Proceeds from long term debt & revolving credit facility - - 1,327,601

Payments on long term debt & revolving credit facility - - (1,170,750)

Excess tax benefits from stock-based compensation arrangements 36,965 45,917 44,783

Proceeds from exercise of stock options & other stock issuances 15,776 10,310 15,485

Payments of debt financing costs (1,713) (947) (6,692)

Cash Dividends Paid - - (2,927)

Contingeent consideration payments for acquisitions - - (1,505)

Net cash flows from financing activities 182,306 440,078 205,995

Effect of exchange rate changes on cash & cash equivalents (3,341) (11,822) (8,725)

Net increase (decrease) in cash & cash equivalents 245,686 (463,323) 120,618

Cash & cash equivalents, beginning of period 347,489 593,175 129,852

Cash & cash equivalents, end of period 593,175 129,852 250,470

Under ArmourCash Flow Statement

Fiscal Year Ending Decmber 31 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

Net Income 191,797 241,267 304,919 355,119 434,101 498,279 600,180 687,990 774,530 801,239 Adjustments to Reconcile: Add: Depreciation and Amortization 154,509 160,475 162,497 160,613 171,258 167,143 129,043 102,381 71,635 73,592

Change in deferred taxes (14,534) (16,525) (15,464) 5,824 (14,500) 27,355 (9,869) 36,194 (6,167) (4,921)

Changes in Working Capital Accounts : Changes in Recievables 29,385 (102,744) (78,613) (39,914) (79,225) (45,020) (47,527) (46,896) (26,773) (16,160)

Changes in Inventories (140,657) (115,497) (95,635) (70,941) (95,234) (103,296) (32,414) (89,397) (56,656) (9,140)

Changes in Prepaid Expenses (14,738) (20,656) (19,329) (12,251) (19,720) (2,326) (15,791) 2,558 (12,334) (9,843)

Changes in Accounts Payable 35,857 48,630 23,566 43,711 20,497 41,877 30,834 14,185 (1,030) 22,736

Changes in Accrued Expenses 23,751 25,378 23,748 16,675 24,360 14,984 11,504 19,866 6,808 12,795

Other Current Liabilities 13,683 5,902 5,523 5,530 5,800 5,528 4,935 4,967 4,111 3,281

Net Cash Provided by Operating Activities 279,053 226,229 311,211 464,366 447,338 604,524 670,894 731,847 754,125 873,579 Cash from Investing Activites

Capital Expenditures (Change in Gross PPE) (400,000) (419,802) (425,713) (426,144) (460,944) (452,937) (349,148) (276,760) (192,729) (199,291)

(Inc) Dec in Other Assets (4,830) (8,302) (11,592) (14,376) (14,028) (9,154) (9,759) (10,947) (9,265) (6,869)

Net Cash Used for Investing Activities (404,830) (428,104) (437,306) (440,519) (474,971) (462,092) (358,907) (287,708) (201,994) (206,160) Change from Financing Activities

Changes in Current Portion of Long Term Debt 6,666 71,939 113,206 106,892 61,888 31,443 83,907 52,197 47,784 48,121

Payment of Long Term Debt - 36,000 (38,000) 61,250 (47,838) 2,764 2,467 2,483 (7,581) 1,312

Proceeds from Exercise of Stock Options & Other Stock Issuances 18,462 18,462 18,462 18,462 18,462 - - - - -

Net Cash proivded by Financing activities 25,128 126,402 93,669 186,605 32,513 34,207 86,374 54,680 40,203 49,434 Net (Decrease) Increase in Cash and Cash Equivalents (100,649) (75,473) (32,426) 210,451 4,879 176,639 398,360 498,819 592,334 716,853

Cash and Cash Equivalents, Beginning of Year 250,470 149,821 74,348 41,921 252,373 257,252 433,891 832,251 1,331,070 1,923,405

Cash and Cash Equivalents, End of Year 149,821 74,348 41,921 252,373 257,252 433,891 832,251 1,331,070 1,923,405 2,640,257

Under ArmourCommon Size Income Statement

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

Net Revenues 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Cost of Goods Sold 48.6% 49.4% 50.6% 51.5% 51.5% 51.0% 51.0% 50.5% 50.5% 50.0% 50.0% 49.5% 49.5%

Depreciation and Amortization 2.3% 2.5% 3.0% 3.0% 2.9% 3.3% 3.2% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1%

Gross Profit 49.0% 48.1% 46.4% 45.6% 45.8% 46.5% 46.7% 47.3% 47.5% 48.5% 48.9% 49.8% 49.8%SGA 37.6% 37.8% 37.8% 39.5% 39.0% 38.8% 38.4% 38.0% 37.7% 37.5% 37.0% 37.0% 37.0%

Income from Operations 11.5% 10.3% 8.7% 6.1% 6.8% 7.8% 8.3% 9.3% 9.8% 11.0% 11.9% 12.8% 12.8%Interest Expense, net 1.9% 3.7% 3.2% 4.8% 4.5% 4.5% 4.5% 4.5% 4.0% 4.0% 4.0% 4.0% 4.0%

Other Expense, net -0.2% -0.2% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Income Before Income Taxes 11.1% 9.8% 8.0% 5.4% 6.1% 7.0% 7.6% 8.5% 9.1% 10.4% 11.3% 12.1% 12.2%

Provisions for Income Taxes 4.3% 3.9% 2.7% 1.8% 2.1% 2.4% 2.6% 2.9% 3.1% 3.5% 3.8% 4.1% 4.1%

Net Income 6.7% 5.9% 5.3% 3.5% 4.0% 4.7% 5.0% 5.7% 6.1% 6.9% 7.5% 8.0% 8.0%

Under ArmourCommon Size Balance Sheet

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

AssetsCurrent Assets Cash and Cash Equivalents 19.2% 3.3% 5.2% 2.8% 1.2% 0.6% 3.6% 3.3% 5.3% 9.5% 14.4% 20.0% 26.5%

Accounts Receiveable, net 9.1% 10.9% 12.9% 11.0% 11.6% 11.8% 11.5% 11.6% 11.4% 11.3% 11.2% 11.0% 10.8%

Inventories 35.8% 40.0% 37.6% 38.0% 38.0% 38.0% 37.0% 37.0% 37.0% 36.0% 36.0% 36.0% 35.0%

Prepaid Expenses and Other Current Assets 2.8% 3.8% 3.6% 3.5% 3.5% 3.5% 3.4% 3.4% 3.2% 3.2% 3.0% 3.0% 3.0%

Deferred Income Taxes 1.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total Current Assets 68.6% 58.1% 59.3% 55.2% 54.3% 54.0% 55.4% 55.4% 56.9% 60.0% 64.6% 70.0% 75.3%

Subtotal Property & Equipment 16.9% 21.0% 24.9% 29.6% 33.7% 37.4% 40.5% 43.4% 46.0% 47.4% 47.8% 47.8% 48.2%

Accumulated Depreciation & Amortization 2.3% 2.5% 3.0% 2.9% 2.7% 2.5% 2.3% 2.2% 2.0% 1.5% 1.1% 0.7% 0.7%

Property and Equipment, net 9.9% 13.6% 16.7% 19.6% 22.2% 24.5% 26.4% 28.2% 29.9% 30.7% 31.0% 31.0% 31.2%

Goodwill 4.0% 14.8% 11.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Intangible Assets, net 0.9% 1.9% 1.3% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%

Deferred Income Taxes 1.1% 2.3% 2.8% 2.8% 2.8% 2.8% 2.5% 2.5% 2.0% 2.0% 1.5% 1.5% 1.5%

Other Long Term Assets 1.9% 2.0% 2.3% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1% 2.1%

Total Assets 86.3% 92.6% 94.1% 81.5% 83.1% 85.0% 88.1% 89.9% 92.5% 96.6% 100.9% 106.2% 111.8%

Liabilities & Stockholders' EquityCurrent Liabilities

Revolving Credit Facility 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Accounts Payable 14.0% 10.2% 16.8% 16.0% 16.0% 15.5% 15.5% 15.0% 15.0% 15.0% 14.5% 14.0% 14.0%

Accrued Expenses 4.8% 4.9% 4.3% 4.3% 4.3% 4.3% 4.2% 4.2% 4.1% 4.0% 4.0% 3.9% 3.9%

Current Maturities of Long Term Debt 0.9% 1.1% 0.6% 0.5% 1.1% 0.4% 1.2% 0.5% 0.5% 0.5% 0.5% 0.4% 0.4%

Other Current Liabilities 1.1% 1.1% 0.8% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Total Current Liabilities 20.9% 17.3% 22.5% 21.8% 22.4% 21.2% 21.9% 20.7% 20.6% 20.5% 20.0% 19.3% 19.3%

Long Term Debt, net of Current Maturities 46.8% 25.7% 47.1% 41.0% 39.0% 39.0% 39.0% 37.0% 35.0% 35.0% 35.0% 35.0% 35.0%

Revolving Credit Facility, Long Term 0.0% 6.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Other Long Term Liabilities 2.2% 2.4% 2.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total Liabilities 69.9% 52.3% 72.4% 62.8% 61.4% 60.2% 60.9% 57.7% 55.6% 55.5% 55.0% 54.3% 54.3%

Stockholders' Equity Additionl Paid-In Capital 24.3% 22.2% 22.6% 21.4% 19.6% 18.2% 16.5% 15.4% 14.0% 12.6% 11.4% 10.3% 9.4%

Retained Earnings 27.8% 27.2% 26.1% 26.8% 28.2% 30.5% 33.1% 36.3% 39.9% 44.5% 49.6% 55.5% 61.7%

Accumulated Other Comprehensive Loss -0.5% -1.1% -1.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total Stockholders' Equity 51.6% 48.2% 47.6% 48.2% 47.9% 48.7% 49.6% 51.6% 53.9% 57.1% 60.9% 65.8% 71.1%

Total Liabilities & Stockholders' Equity 121.4% 100.5% 120.0% 111.0% 109.2% 108.9% 110.5% 109.3% 109.5% 112.6% 115.9% 120.1% 125.4%

Under ArmourWeighted Average Cost of Capital (WACC) Estimation

Cost of Capital Assumptions Total DebtCost of Debt 5.6% Maturities of Long Term Debt 27,000

Tax Rate 33.8% Long Term Debt 790,388

After Tax Cost of Debt 3.7% PV Operating Leases 1,031,160

Total Debt 1,848,548Risk-Free Rate (30Y) 3.0%

Beta 1.19

Equity Risk Premium 4.3%

Cost of Equity 8.2%

Capital Weights

Amount % of Total

Market Value of Equity 8,422,412$ 82.0%

Total Debt 1,848,548$ 18.0%

Weighted Average Cost of Capital (WACC) 7.4%

Under ArmourValue Driver Estimation

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

Assumptions:WACC 7.36% 7.36% 7.36% 7.36% 7.36% 7.36% 7.36% 7.36% 7.36% 7.36% 7.36% 7.36% 7.36%

Cost of Debt 5.61% 5.61% 5.61% 5.61% 5.61% 5.61% 5.61% 5.61% 5.61% 5.61% 5.61% 5.61% 5.61%

Normal Cash 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3%

Marginal Tax Rate 34.30% 32.70% 30.80% 32.68% 32.68% 32.68% 32.68% 32.68% 32.68% 32.68% 32.68% 32.68% 32.68%

Operating Revenues 3,084,370 3,963,313 4,825,335 5,406,992 5,997,168 6,549,437 7,102,395 7,682,395 8,235,224 8,728,698 9,225,349 9,636,470 9,964,557

Less: Cost of Goods Sold 1,500,071 1,956,826 2,439,954 2,784,601 3,088,541 3,340,213 3,622,222 3,879,610 4,158,788 4,364,349 4,612,674 4,770,053 4,932,456

Less: SGA 1,158,251 1,497,000 1,823,140 2,135,762 2,338,895 2,537,907 2,727,320 2,919,310 3,104,680 3,273,262 3,413,379 3,565,494 3,686,886

Add: Implied Interest on Operating Leases 14,085 20,260 30,975 46,426 58,191 70,121 82,064 94,982 107,676 117,461 125,217 130,618 136,203

EBITA 440,133 529,747 593,216 533,055 627,922 741,439 834,918 978,458 1,079,432 1,208,548 1,324,512 1,431,542 1,481,418

Income Tax Provisions 134,168 154,112 131,303 98,014 123,295 155,823 181,477 221,839 254,636 306,710 351,584 395,809 409,458

Plus: Tax Shield on Interest Expense 1,830 4,783 8,142 12,926 13,706 14,812 17,285 17,491 15,995 17,124 17,839 18,364 19,010

Plus: Tax Shield on any Non-Operating Expense 2,199 2,366 849 900 900 900 900 900 900 900 900 900 900

Plus: Tax shield on Operating Leases 4,831 6,625 9,540 15,172 19,017 22,916 26,819 31,040 35,188 38,386 40,921 42,686 44,511

Less: Total Adjusted Taxes 143,028 167,886 149,833 127,013 156,918 194,451 226,480 271,271 306,719 363,121 411,244 457,759 473,880

Deferred Tax Liabilities (Current Year) - - - - - - - -

Less: Deferred Tax Assets (Current Year) 86,068 92,157 136,862 151,396 167,921 183,384 177,560 192,060 164,704 174,574 138,380 144,547 149,468

Total Deferred Taxes (Current Year) (86,068) (92,157) (136,862) (151,396) (167,921) (183,384) (177,560) (192,060) (164,704) (174,574) (138,380) (144,547) (149,468)

Deferred Tax Liabilities (Previous Year) - - - - - - - - - - - - -

Less: Deferred Tax Assets (Previous Year) 69,471 86,068 92,157 136,862 151,396 167,921 183,384 177,560 192,060 164,704 174,574 138,380 144,547

Total Deferred Taxes (Previous Year) (69,471) (86,068) (92,157) (136,862) (151,396) (167,921) (183,384) (177,560) (192,060) (164,704) (174,574) (138,380) (144,547)

Plus: Change in Deferred Taxes (16,597) (6,089) (44,705) (14,534) (16,525) (15,464) 5,824 (14,500) 27,355 (9,869) 36,194 (6,167) (4,921)

NOPLAT 280,509 355,772 398,677 391,509 454,479 531,525 614,262 692,687 800,068 835,558 949,462 967,615 1,002,617

Normal Cash 101,784 130,789 159,236 178,431 197,907 216,131 234,379 253,519 271,762 288,047 304,437 318,004 328,830

Accounts Receivable 279,835 433,638 622,685 593,300 696,044 774,657 814,571 893,796 938,816 986,343 1,033,239 1,060,012 1,076,172

Inventory 536,714 783,031 917,491 1,058,148 1,173,646 1,269,281 1,340,222 1,435,456 1,538,752 1,571,166 1,660,563 1,717,219 1,726,359

Prepaid Expenses and Other Current Operating Assets 87,177 152,242 174,507 189,245 209,901 229,230 241,481 261,201 263,527 279,318 276,760 289,094 298,937

Total Current Operating Assets 1,005,510 1,499,700 1,873,919 2,019,124 2,277,497 2,489,300 2,630,653 2,843,972 3,012,857 3,124,874 3,274,999 3,384,328 3,430,299

Accounts Payable 210,432 200,460 409,679 445,536 494,167 517,733 561,444 581,941 623,818 654,652 668,838 667,807 690,544

Accrued Expenses 147,681 192,935 208,750 232,501 257,878 281,626 298,301 322,661 337,644 349,148 369,014 375,822 388,618

Total Current Operating Liabilities 358,113 393,395 618,429 678,037 752,045 799,359 859,745 904,602 961,462 1,003,800 1,037,852 1,043,630 1,079,162

Net Operating Working Capital 647,397 1,106,305 1,255,490 1,341,087 1,525,452 1,689,941 1,770,908 1,939,370 2,051,394 2,121,074 2,237,147 2,340,699 2,351,137

Plus: Net Property, Plant, and Equipment (PPE) 305,564 538,531 804,211 1,060,211 1,328,884 1,601,341 1,874,073 2,169,077 2,458,957 2,682,411 2,859,538 2,982,885 3,110,431

Plus: Net Other Operating Assets (Net of Depreciation and Amortization) 83,294 154,268 174,514 168,835 167,791 170,144 177,318 186,028 191,097 197,506 205,707 212,719 217,741

Net Intangible Assets (Non-Goodwill) 26,230 75,686 64,310 53,801 44,455 35,215 28,014 22,696 18,611 15,261 12,514 10,261 8,414

Other Operating Assets 57,064 78,582 110,204 115,034 123,336 134,929 149,304 163,332 172,486 182,246 193,193 202,458 209,326

Less: Other Long Term Liabilities 67,906 94,868 137,227 137,227 137,227 137,227 137,227 137,227 137,227 137,227 137,227 137,227 137,227

Plus: Pv Operating Leases 250,896 360,886 551,738 826,965 1,036,530 1,249,046 1,461,777 1,691,880 1,917,986 2,092,281 2,230,440 2,326,650 2,426,136

Invested Capital 1,219,246 2,065,122 2,648,726 3,259,871 3,921,430 4,573,244 5,146,849 5,849,127 6,482,207 6,956,045 7,395,604 7,725,725 7,968,218

NOPLAT 280,509 355,772 398,677 391,509 454,479 531,525 614,262 692,687 800,068 835,558 949,462 967,615 1,002,617

Less: Change in Invested capital 289,119 845,876 583,604 611,145 661,559 651,814 573,605 702,278 633,080 473,838 439,559 330,121 242,493

Free Cash Flow (FCF) (8,611) (490,104) (184,927) (219,636) (207,080) (120,289) 40,657 (9,591) 166,988 361,720 509,903 637,494 760,125

Beginning Invested Capital 930,126 1,219,246 2,065,122 2,648,726 3,259,871 3,921,430 4,573,244 5,146,849 5,849,127 6,482,207 6,956,045 7,395,604 7,725,725

ROIC 30.16% 29.18% 19.31% 14.78% 13.94% 13.55% 13.43% 13.46% 13.68% 12.89% 13.65% 13.08% 12.98%

WACC 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4%

Economic Profit (EP) 212,084 266,078 246,756 196,654 214,666 243,044 277,830 314,058 369,776 358,693 437,739 423,556 434,273

Under ArmourDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth NOPLAT 2.50%

CV Growth ROIC 13.0%

WACC 7.36%

Cost of Equity 8.16%

Fiscal Years Ending Dec. 31 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

DCF Model

NOPLAT 391,509 454,479 531,525 614,262 692,687 800,068 835,558 949,462 967,615 1,002,617

Less: Change in Invested Capital 611,145 661,559 651,814 573,605 702,278 633,080 473,838 439,559 330,121 242,493

Free Cash Flow (FCF) (219,636) (207,080) (120,289) 40,657 (9,591) 166,988 361,720 509,903 637,494 760,125 Continuing Value (CV) 16,667,768

Discount Period 1 2 3 4 5 6 7 8 9 9

PV of FCF (204,586) (179,673) (97,217) 30,607 (6,726) 109,072 220,076 288,975 336,527 8,798,759

Enterprise Value 9,295,816 Plus: Excess Cash -

Plus: Other Long Term Assets 110,204

Less: Operating Leases 1,031,160

Less: ESOP 106,457

Less: Long Term Debt Obligations 790,388

Less: Current Maturities of LT Debt 27,000

Equity Value 7,451,016 Shares Outstanding 438,439

Intrinsic Value of Stock 17.44$

EP Model

NOPLAT 391,509 454,479 531,525 614,262 692,687 800,068 835,558 949,462 967,615 1,002,617

Beg IC 2,648,726 3,259,871 3,921,430 4,573,244 5,146,849 5,849,127 6,482,207 6,956,045 7,395,604 7,725,725

ROIC 14.8% 13.9% 13.6% 13.4% 13.5% 13.7% 12.9% 13.6% 13.1% 13.0%

WACC 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4%

Economic Profit 196,654 214,666 243,044 277,830 314,058 369,776 358,693 437,739 423,556 434,273 Continuing Value (CV) 8,942,043

Discount Period 1 2 3 4 5 6 7 8 9 9

PV of FCF 183,179 186,254 196,426 209,154 220,225 241,528 218,234 248,078 223,591 4,720,421

Enterprise Value 9,295,816 Plus: Excess Cash -

Plus: Other Long Term Assets 110,204

Less: Operating Leases 1,031,160

Less: ESOP 106,457

Less: Long Term Debt Obligations 790,388

Less: Current Maturities of LT Debt 27,000

Equity Value 7,451,016 Shares Outstanding 438,439

Intrinsic Value of Stock 17.44$

Under ArmourRelative Valuation Models

EV/Sales P/E P/E EV/EBITDA Company Ticker Price Mkt. Cap EV 2016 2016 2017E LTM 2016 5 Yr. CAGR EBITDA EBIT FCFSkechers SKX 26.21$ 4,150$ 3,849$ 1.1x 15.7x 14.9x 8.8x 3,563$ 17.3% 12% 10% 7%

Adidas ADDYY 94.90$ 40,803$ 40,432$ 1.9x 30.1x 29.5x 23.3x 21,293$ 2.7% 8% 6% 4%

Columbia Sportswear COLM 58.75$ 4,082$ 3,565$ 1.5x 21.4x 20.9x 11.0x 2,377$ 7.0% 13% 11% 9%

Hanesbrands HBI 20.76$ 7,733$ 11,015$ 1.8x 11.7x 10.6x 11.0x 6,028$ 5.4% 17% 15% 9%

Lululemon Athletica Inc LULU 51.22$ 7,109$ 6,374$ 3.5x 30.7x 22.5x 12.7x 2,316$ 18.6% 21% 17% 10%

Nike NIKE 55.73$ 92,190$ 89,784$ 2.7x 22.7x 22.3x 19.4x 33,458$ 9.2% 14% 12% 8%

Under Armour Inc UAA 19.21$ 8,332$ 8,899$ 1.8x 44.5x 46.9x 15.4x 4,825$ 26.8% 12% 9% -2%

Mean 26,011$ 25,837$ 2.1x 22.x 20.1x 14.4x 11,506$ 10% 14% 12% 8%

Median 7,421$ 8,695$ 1.9x 22.x 21.6x 11.9x 4,796$ 8% 13% 11% 8%

Under Armour (UAA) Implied Value:EPS '17 0.43

Implied PE '17 44.21x

EBITDA '16 562,241

Implied Enterprise Value 8,082,046

Multiples Operating Metrics Revenue Margins

Under ArmourKey Management Ratios

Fiscal Years Ending Dec. 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

Liquidity RatiosCurrent Ratio 3.7 3.1 2.9 2.6 2.5 2.6 2.6 2.8 2.9 3.2 3.7 4.2 4.7

Cash Ratio 1.4 0.3 0.4 0.2 0.1 0.0 0.2 0.3 0.4 0.7 1.1 1.6 2.2

Quick Ratio 2.4 1.5 1.5 1.2 1.1 1.2 1.3 1.4 1.5 1.8 2.2 2.8 3.3

Activity or Asset-Management RatiosInventory Turnover Ratio 2.8 2.5 2.7 2.6 2.6 2.6 2.7 2.7 2.7 2.8 2.8 2.8 2.9

Day Sales of Inventory 130.6 146.1 137.3 138.7 138.7 138.7 135.1 135.1 135.1 131.4 131.4 131.4 127.8

Working Capital Turnover 2.7 3.8 3.6 4.2 4.5 4.4 4.2 4.0 3.8 3.3 2.8 2.4 2.1

Financial Leverage RatiosDebt to Equity (D/E) 4.8 4.2 2.5 2.7 2.7 2.8 2.7 3.1 3.4 3.6 4.0 4.4 4.8

Debt Ratio 13.6% 13.7% 22.4% 20.9% 21.3% 20.8% 21.6% 20.0% 18.7% 18.0% 16.9% 15.8% 14.9%

Total Debt to Capitalization 17.4% 19.1% 28.7% 26.9% 27.1% 26.3% 26.9% 24.6% 22.8% 21.6% 20.1% 18.4% 17.2%

Profitability RatiosGross Profit Margin 49.0% 48.1% 46.4% 45.6% 45.8% 46.5% 46.7% 47.3% 47.5% 48.5% 48.9% 49.8% 49.8%

Profit Margin 6.7% 5.9% 5.3% 3.5% 4.0% 4.7% 5.0% 5.7% 6.1% 6.9% 7.5% 8.0% 8.0%

EBITDA Margin 13.8% 12.9% 11.7% 9.0% 9.5% 10.3% 10.6% 11.5% 11.8% 12.5% 13.0% 13.5% 13.5%

Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013) Present Value of Operating Lease Obligations (2012)

Operating Operating Operating Operating Operating

Fiscal Years Ending Fiscal Year Ending Leases Fiscal Years Ending Fiscal Year End Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases Fiscal Years Ending 0.0175 Leases

2017 114,857 2016 84,620 2015 56,452 2014 44,292 2013 30,610

2018 127,504 2017 84,566 2016 57,079 2015 44,116 2014 33,558

2019 136,040 2018 81,912 2017 52,172 2016 37,308 2015 31,848

2020 133,092 2019 77,332 2018 48,345 2017 32,532 2016 24,980

2021 122,753 2020 73,808 2019 44,313 2018 29,347 2017 20,181

Thereafter 788,180 Thereafter 314,836 Thereafter 214,214 Thereafter 136,329 Thereafter 61,718

Total Minimum Payments 1,422,426 Total Minimum Payments 717,074 Total Minimum Payments 472,575 Total Minimum Payments 323,924 Total Minimum Payments 202,895

Less: Interest 391,266 Less: Interest 165,336 Less: Interest 111,689 Less: Interest 73,028 Less: Interest 39,273

PV of Minimum Payments 1,031,160 PV of Minimum Payments 551,738 PV of Minimum Payments 360,886 PV of Minimum Payments 250,896 PV of Minimum Payments 163,622

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 5.61% Pre-Tax Cost of Debt 5.61% Pre-Tax Cost of Debt 5.61% Pre-Tax Cost of Debt 5.61% Pre-Tax Cost of Debt 5.61%

Number Years Implied by Year 6 Payment 6.4 Number Years Implied by Year 6 Payment 4.3 Number Years Implied by Year 6 Payment 4.8 Number Years Implied by Year 6 Payment 4.6 Number Years Implied by Year 6 Payment 3.1

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease

Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment

1 114,857 108,752 1 84,620.00 80,122 1 56452 53451.2 1 44292 41937.6 1 30610 28982.9

2 127,504 114,309 2 84,566 75,815 2 57079 51172.1 2 44116 39550.6 2 33558 30085.2

3 136,040 115,479 3 81,912 69,532 3 52172 44286.7 3 37308 31669.2 3 31848 27034.5

4 133,092 106,971 4 77,332 62,155 4 48345 38856.7 4 32532 26147.2 4 24980 20077.4

5 122,753 93,417 5 73,808 56,169 5 44313 33722.8 5 29347 22333.5 5 20181 15358.0

6 & beyond 122,753 492,233 6 & beyond 73,808 207,946 6 & beyond 44313 139396.0 6 & beyond 29636.73913 89258.3 6 & beyond 20181 42084.5

PV of Minimum Payments 1,031,160 PV of Minimum Payments 551,738 PV of Minimum Payments 360885.5 PV of Minimum Payments 250896.4 PV of Minimum Payments 163622.4

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 8,125

Average Time to Maturity (years): 3.19

Expected Annual Number of Options Exercised: 2,546

Current Average Strike Price: 7.25$

Cost of Equity: 8.16%

Current Stock Price: $19.21

2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

Increase in Shares Outstanding: 2,546 2,546 2,546 2,546 2,546

Average Strike Price: 7.25$ 7.25$ 7.25$ 7.25$ 7.25$ -$ -$ -$ -$ -$ -$

Increase in Common Stock Account: 18,462 18,462 18,462 18,462 18,462 - - - - - -

Shares Outstanding (beginning of the year) 436,330 438,876 441,422 443,967 446,513 449,059 449,059 449,059 449,059 449,059 449,059

Plus: Shares Issued Through ESOP 2,546 2,546 2,546 2,546 2,546 0 0 0 0 0 0

Less: Shares Repurchased in Treasury - - - - - - - - - - -

Shares Outstanding (end of the year) 438,876 441,422 443,967 446,513 449,059 449,059 449,059 449,059 449,059 449,059 449,059

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol UAA

Current Stock Price $19.21

Risk Free Rate 2.99%

Current Dividend Yield 0.00%

Annualized St. Dev. of Stock Returns 38.80%

Average Average B-S Value

Range of Number Exercise Remaining Option of Options

Outstanding Options of Shares Price Life (yrs) Price Granted

Range 1 4,265 9.63 4.27 11.51$ 49,103$

Range 2 1,930 4.66 2.00 14.83$ 28,614$

Range 3 1,930 4.59 2.00 14.89$ 28,740$

Total 8,125 7.25$ 3.19 12.82$ 106,457$

CV Growth of NOPLAT17.44$ 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25% 17.44$ 0.90 1.00 1.05 1.10 1.19 1.22 1.25

7.16% 17.02$ 17.53$ 18.08$ 18.70$ 19.39$ 20.16$ 21.02$ 2.85% 26.70$ 23.28$ 21.79$ 20.42$ 18.16$ 17.56$ 16.92$

7.26% 16.47$ 16.95$ 17.47$ 18.05$ 18.69$ 19.40$ 20.21$ 2.90% 26.27$ 22.92$ 21.46$ 20.12$ 17.90$ 17.31$ 16.69$

WACC 7.36% 15.96$ 16.41$ 16.90$ 17.44$ 18.04$ 18.71$ 19.46$ Rf Rate 2.95% 25.85$ 22.57$ 21.14$ 19.83$ 17.64$ 17.07$ 16.45$

7.46% 15.44$ 15.86$ 16.32$ 16.83$ 17.38$ 18.01$ 18.70$ 2.99% 25.52$ 22.30$ 20.89$ 19.59$ 17.44$ 16.88$ 16.27$

7.56% 14.95$ 15.35$ 15.78$ 16.25$ 16.77$ 17.35$ 18.00$ 3.05% 25.04$ 21.90$ 20.52$ 19.25$ 17.15$ 16.59$ 16.00$

7.66% 14.48$ 14.85$ 15.26$ 15.70$ 16.19$ 16.73$ 17.33$ 3.10% 24.65$ 21.57$ 20.22$ 18.97$ 16.91$ 16.36$ 15.78$

7.76% 14.03$ 14.38$ 14.76$ 15.17$ 15.63$ 16.14$ 16.70$ 3.15% 24.26$ 21.24$ 19.92$ 18.70$ 16.67$ 16.13$ 15.56$

CV Growth of ROIC Beta17.44$ 11.5% 12.0% 12.5% 13.0% 13.5% 14.0% 14.5% 17.44$ 1.07 1.10 1.12 1.15 1.19 1.23 1.25

7.16% 18.03$ 18.28$ 18.50$ 18.70$ 18.90$ 19.08$ 19.25$ 4.25% 20.88$ 20.11$ 19.61$ 18.90$ 17.93$ 17.14$ 16.73$

7.26% 17.40$ 17.64$ 17.85$ 18.05$ 18.24$ 18.42$ 18.58$ 4.30% 20.55$ 19.78$ 19.29$ 18.58$ 17.62$ 16.85$ 16.44$

WACC 7.36% 16.81$ 17.04$ 17.25$ 17.44$ 17.63$ 17.80$ 17.96$ Equity 4.33% 20.36$ 19.59$ 19.10$ 18.40$ 17.44$ 16.67$ 16.27$

7.46% 16.21$ 16.44$ 16.64$ 16.83$ 17.01$ 17.17$ 17.33$ Risk Prem. 4.50% 19.30$ 18.56$ 18.08$ 17.40$ 16.47$ 15.72$ 15.34$

7.56% 15.66$ 15.87$ 16.07$ 16.25$ 16.43$ 16.59$ 16.74$ 4.70% 18.14$ 17.42$ 16.96$ 16.30$ 15.41$ 14.69$ 14.32$

7.66% 15.12$ 15.33$ 15.53$ 15.70$ 15.88$ 16.03$ 16.18$ 4.90% 17.07$ 16.37$ 15.93$ 15.29$ 14.43$ 13.73$ 13.37$

7.76% 14.61$ 14.82$ 15.01$ 15.18$ 15.34$ 15.49$ 15.64$ 5.10% 16.07$ 15.40$ 14.97$ 14.35$ 13.52$ 12.85$ 12.50$

Beta