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2006 2007 2008 2009

Cash flows from operating activities

Net income 38,979 52,558 38,229 46,785

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization 9,824 14,622 21,347 28,249

Unrealized foreign currency exchange rate (gains) losses 161 -2,567 5,459 -5,222

Loss on disposal of property and equipment 115 15 37Stock-based compensation 1,982 4,182 8,466 12,910

Gain on bargain purchase of corporate headquarters (excludes transaction costs of $1.9 million)

Deferred income taxes -6,721 -4,909 -2,818 -5,212

Changes in reserves and allowances 3,832 4,551 8,711 1,623

Changes in operating assets and liabilities:

Accounts receivable -20,828 -24,222 2,634 3,792

Inventories -26,504 -83,966 -19,497 32,998

Prepaid expenses and other assets -3,997 -2,067 -7,187 1,870

Accounts payable 8,203 11,873 16,957 -4,386

Accrued expenses and other liabilities 10,681 11,825 -5,316 11,656

Income taxes payable and receivable -5,026 3,492 2,516 -6,059

Net cash provided by operating activities 10,701 -14,628 69,516 119,041

Cash flows from investing activities

Purchase of property and equipment -15,115 -33,959 -38,594 -19,845

Purchase of corporate headquarters and related expenditures

Purchase of intangible assets -125 -600

Purchase of trust owned life insurance policies -2,893 -35

Purchase of long term investment 21

Purchases of other assets -89,650 -62,860 Change in restricted cash

89,650 62,860

Net cash used in investing activities -15,115 -34,084 -42,066 -19,880

Cash flows from financing activities

Proceeds from revolving credit facility 40,000

Payments on revolving credit facility -15,000 -25,000

Proceeds from term loan

Proceeds from long term debt 2,119 11,841 13,214 7,649

Payments on long term debt -2,413 -2,973 -6,490 -7,656

Payments on capital lease obligations -1,840 -794 -464 -361Excess tax benefits from stock-based compensation arrangem 11,260 6,892 2,131 5,127

Proceeds from exercise of stock options and other stock issua 3,544 3,182 1,990 5,128

Payments of debt financing costs -260 -1,354

169

Net cash provided by (used in) financing activities 12,579 18,148 35,381 -16,467

Effect of exchange rate changes on cash and cash equivalents -487 497 -1,377 2,561

Net increase (decrease) in cash and cash equivalents 7,678 -30,067 61,454 85,255

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Cash and cash equivalents

Beginning of year 62,977 70,655 40,588 102,042

End of year 70,655 40,588 102,042 187,297

Non-cash financing and investing activitiesDebt assumed in connection with purchase of corporate headquarters

Other supplemental information

Cash paid for income taxes 20,522 30,502 29,561 40,834

Cash paid for interest 531 525 1,444 1,273

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2010 2011

68,477 96,919 NCC

-28,278 -67,186 31,287 72,256 16,637 13,299

31,321 36,301 -28,278 -67,186 31,287 72,256 -18,363 -81,701

1,280 4,027 0.04314 0.084371

44 3616,227 18,063

-3,300

-10,337 3,620

2,322 5,536

-32,320 -33,923

-65,239 -114,646

-4,099 -42,633

16,158 17,209

21,330 23,442

4,950 4,567

50,114 15,218 10,701 -14,628 69,516 119,041 50,114 15,218

-30,182 -56,228

-23,164

-11,125 -3,862

-478 -1,153 -5,029

-41,785 -89,436

30,000

-30,000

25,000

5,262 5,644

-9,446 -7,418

-97

4,189 10,260

7,335 14,645

-2,324

7,243 45,807

1,001 -75

16,573 -28,486

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187,297 203,870

203,870 175,384

38,556

38,773 56,940

992 2,305

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6,336

-15,331

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2006 2007 2008 2009 2010

Net revenues 430,689 606,561 725,244 856,411 1,063,927

Cost of goods sold 215,089 301,517 370,296 443,386 533,420

Gross profit 215,600 305,044 354,948 413,025 530,507

Selling, general and administrative expenses 158,682 218,779 278,023 327,752 418,152

Income from operations 56,918 86,265 76,925 85,273 112,355

Interest expense, net -850 -2,344 -2,258

Other expense, net 2,169 2,778 -6,175 -511 -1,178

Income before income taxes 59,087 89,043 69,900 82,418 108,919

Provision for income taxes 20,108 36,485 31,671 35,633 40,442

Net income 38,979 52,558 38,229 46,785 68,477

Net income available per common share

Basic 0.83 1.09 0.78 0.94 1.35

Diluted 0.79 1.05 0.76 0.92 1.34

Weighted average common shares outstanding

Basic 46,983 48,021 49,086 49,848 50,798

Diluted 49,587 49,959 50,342 50,650 51,282

profit margin 9% 9% 5% 5% 6%

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2011

1,472,684 29,923 52,332 73,548 72,926 76,127 159,135

759,848 0.07 0.09 0.10 0.09 0.07 0.11

712,836

550,069

162,767

-3,841

-2,064

156,862

59,943

96,919

1.88

1.85

51,570

52,526

7% 7%

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0.09

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2006 2007 2008 2009 2010 2011

Assets

Current assets

Cash and cash equivalents 70,655 40,588 102,042 187,297 203,870 175,384

Accounts receivable, net 71,867 93,515 81,302 79,356 102,034 134,043

Inventories 81,031 166,082 182,232 148,488 215,355 324,409

Prepaid expenses and other current ass 8,944 11,028 18,023 19,989 19,326 39,643Income tax receivables 4,310 614

Deferred income taxes 8,145 10,418 12,824 12,870 15,265 16,184

Total current assets 244,952 322,245 396,423 448,000 555,850 689,663

Property and equipment, net 29,923 52,332 73,548 72,926 76,127 159,135

Intangible assets, net 7,875 6,470 5,470 5,681 3,914 5,535

Deferred income taxes 5,180 8,173 8,687 13,908 21,275 15,885

Other long term assets 1,438 1,393 3,427 5,073 18,212 48,992

Total assets 289,368 390,613 487,555 545,588 675,378 919,210

Liabilities and Stockholders Equity

Current liabilities

Revolving credit facility 25,000

Accounts payable 42,718 55,012 72,435 68,710 84,679 100,527

Accrued expenses 25,403 36,111 25,905 40,885 55,138 69,285

Current maturities of long term debt 2,648 4,111 7,072 9,178 6,865 6,882

794 465 361 97

Other current liabilities 2,337 1,292 2,465 6,913

Total current liabilities 71,563 95,699 133,110 120,162 149,147 183,607

Long term debt, net of current maturiti 1,893 9,298 13,061 10,948 9,077 70,842Other long term liabilities 602 4,673 10,190 14,481 20,188 28,329

Capital lease obligations 922 458 97

Total liabilities 74,980 110,128 156,458 145,591 178,412 282,778

Commitments and contingencies (see Note 8)

Stockholders equity

Class A Common Stock, $.0003 1/3 par 12 12 12 13 13 13

Class B Convertible Common Stock, $.0 4 4 4 4 4 4

Additional paid-in capital 148,562 162,362 174,725 197,342 224,887 268,223Retained earnings 66,376 117,782 156,011 202,188 270,021 366,164

Accumulated other comprehensive inco -463 -182 405 464 2,041 2,028

Unearned compensation -103 507 -60 -14

Total stockholders equity 214,388 280,485 331,097 399,997 496,966 636,432

Total liabilities and stockholders equity 289,368 390,613 487,555 545,588 675,378 919,210

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WC

173,389 226,546 263,313 327,838 406,703 506,056

0.402585 0.373493 0.363068 0.382805 0.382266 0.343628

0.374641

106,053,000

0.107887

0.307632

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Inputs

Beta_equity 1.14

Growth Rates:

UA 25.00%

Industry 15.00%

Sector 13.00%

S&P 500 10.30%Economy 3.50%

RF_10yr 4.00%

Excess period 5

Risk Premium 4.00%

Cost of equity 8.56%

Cost of debt 3.50%

Tax rate - Cedc 10-Q 38.00%

Profit margin 7%

operating margin % 11%

NCC % of rev 8%

Working Cap % of rev 37%

Share price 56

Shares outstanding 104,460,000

MV of equity 5,849,760,000

MV of debt 106,053,000

D/V 0.017806637

E/V 0.982193363

WACC 8.44%

RF rate 4.00%

FCFF 2011 2012

Period -1 0

Revenue 1,472,684,000 1,840,855,000

NI 96,919,000 128,859,850

CFO 15,218,000 135,195,683

Operating income 156,862,000 210,225,641

NCC -81,701,000 6,335,833

Interest expense 3,841,000 3,841,000

After-tax int exp 2,381,420

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FCInv - Cap expenditures 16,000,000 65,000,000

Working Capital 506,056,000 689,659,333

Increase in WC 183,603,333

FCFF (111,026,230)

PV of FCFF -111,026,230

Sum of FCFF 3,349,191,725

Enterprise value 4,038,854,725Value to comm equity 3,932,801,725

Intrinsic value 37.65

Ours Analyst Projections

EPS 2011 0.93 0.93

EPS 2012 1.23 1.19

EPS 2013 1.54 1.54

Projected P/E 30.52 47.06

Forward P/E 24.42 36.36

Implied growth 2012 32.96% 28.26%

Implied growth 2013 25.00% 29.41%

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25% 20%

Excess Growth Period

2013 2014 2015 2016 2017

1 2 3 4 5

2,301,068,750 2,876,335,938 3,595,419,922 4,494,274,902 5,393,129,883

161,074,813 201,343,516 251,679,395 314,599,243 377,519,092

168,044,229 209,009,874 260,112,389 323,875,537 387,723,015

262,782,051 328,477,564 410,596,955 513,246,194 615,895,433

6,969,417 7,666,358 8,432,994 9,276,294 10,203,923

3,841,000 3,841,000 3,841,000

2,381,420 2,381,420 2,381,420 0 0

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68,250,000 71,662,500 75,245,625 79,007,906 75,057,511

862,074,166 1,077,592,708 1,346,990,885 1,683,738,606 2,020,486,327

172,414,833 215,518,542 269,398,177 336,747,721 336,747,721

(70,239,184) (75,789,748) (82,149,993) (91,880,091) (24,082,217)

-64,771,196 -64,448,880 -64,419,138 -66,440,249 -16,058,640

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15% 10% 5% 3.50%

Second Period - Slowed Growth Perpetuity

2018 2019 2020 Residual

6 7 8

6,202,099,365 6,822,309,302 7,163,424,767

434,146,956 477,561,651 501,439,734

445,371,271 489,908,398 515,021,155

708,279,748 779,107,722 818,063,108

11,224,315 12,346,747 13,581,421

0 0 0

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71,304,635 67,739,404 64,352,433

2,323,559,276 2,555,915,204 2,683,710,964

303,072,949 232,355,928 127,795,760

70,993,686 189,813,067 322,872,961 6,533,237,325

43,655,049 107,632,472 168,830,670 3,416,237,866

20.23 322mm residual for

9,686,188,844.85 fcff

5,064,920,109.92$ pv of terminal fcff

4,997,873,968.65$ sum of fcff

583,610,000 spread between sum

53.4317822 value to common eq

whats the probabilit

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1.1% 3.5% 3.0% 2.5% 2.1% 1.8%

20.23 years

and value to common

uity if firm can provide 322mm residual value for 30 years

y that UA will produce 322mm fcf for 31 years?

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1.4% 1.1% 1.0% 0.9%

1.8%

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Nike comparison

1977 1978 1979 1980 1981 1982 1983

sales 28711 71001 149830 269775 457742 693582 867212

% growth 147% 111% 80% 70% 52% 25%

0.807677

net income 1522 3856 9723 12505 25955 49036 57004

%growth 153% 152% 29% 108% 89% 16%

% of sales 5% 5% 6% 5% 6% 7% 7%

ppe net 10166 16172 39731

% growth 59% -100% #DIV/0!

%of sales 4% 4% 0% 5%

working capital 2645 5351 13266 29624 74687 112170 209871

% growth 102% 148% 123% 152% 50% 87%% of sales 9% 8% 9% 11% 16% 16% 24%

fcf

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1984 1985 1986 1987 1988 1989 1990 1991 1992

919806 956371 1069222 877257 1203440 1710803 2235244 3003000 3405000

6% 4% 12% -18% 37% 42% 31% 34% 13%

43%

40690 10270 59211 35879 101695 167047 242958 287000 329000

-29% -75% 477% -39% 183% 64% 45% 18% 15%

4% 1% 6% 4% 8% 10% 11% 10% 10%

55915 50748 39834 48480 57703 89900 159000 292000 346000

41% -9% -22% 22% 19% 56% 77% 84% 18%

6% 5% 4% 6% 5% 5% 7% 10% 10%

234247 217849 278784 325200 298816 422000 564000 666000 967000

12% -7% 28% 17% -8% 41% 34% 18% 45%25% 23% 26% 37% 25% 25% 25% 22% 28%

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1993 1994 1995 1996 1997 1998 1999 2000 2001

3930000 3789000 4760000 6470000 9186000 9553000 8776000 8,995,000$ 9488000

15% -4% 26% 36% 42% 4% -8% 2% 5%

365000 298000 399000 553000 795000 399000 451000 579,000$ 589000

11% -18% 34% 39% 44% -50% 13% 28% 2%

9% 8% 8% 9% 9% 4% 5% 6% 6%

378000 406000 554000 642000 922000 1153000 1265000 1,583,000$ 1618000

9% 7% 36% 16% 44% 25% 10% 25% 2%

10% 11% 12% 10% 10% 12% 14% 18% 17%

1165000 1209000 938000 1246000 1964000 1829000 1818000 1,456,000$ 1839000

20% 4% -22% 33% 58% -7% -1% -20% 26%30% 32% 20% 19% 21% 19% 21% 16% 19%

35mm (243mm) (115mm) 440mm 206mm 209mm

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2002 2003 2004 2005 2006 2007 2008 2009 2010

9893000 10697000 12253000 13739000 14954000 16325000 18627000 19176000 19014000

4% 8% 15% 12% 9% 9% 14% 3% -1%

663000 474000 945000 1211000 1392000 1491000 1883000 1487000 1907000

13% -29% 99% 28% 15% 7% 26% -21% 28%

7% 4% 8% 9% 9% 9% 10% 8% 10%

1614000 1620000 1586000 1605000 1657000 1678000 1891000 1957000 1931000

0% 0% -2% 1% 3% 1% 13% 3% -1%

16% 15% 13% 12% 11% 10% 10% 10% 10%

2321000 2767000 3503000 4352000 4736000 5492000 5518000 6457000 7595000

26% 19% 27% 24% 9% 16% 0% 17% 18%23% 26% 29% 32% 32% 34% 30% 34% 40%

670mm 594mm 832mm 1.03bil 1.04bil 1.22 bil 749mm 813mm 2.3 bil

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2011 Average

20862000

10% 25%

2133000

12%

10% 7.3%

2115000

10%

10% 9%

7339000

-3%35% 24%

825mm

40%

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S&P 500 Nike UA

Month Price Return % Price Return % Price Return %

06/2012 1362.16 0.04 87.78 -0.19 47.24 -0.06

12/2005 1248.29 0.00 39.27 0.02 19.16 0.70

11/2005 1249.48 0.04 38.46 0.02 11.26 #DIV/0!

10/2005 1207.01 -0.02 37.89 0.03

07/1998 1120.67 #DIV/0! 18.2 #VALUE!Nike UA

Beta 0.84 1.47

D/V 0.006397 0.017807

E/V 0.993603 0.982193

Tax rate 26% 38%

Levered Beta Average

beta of asset 0.83045 1.447407 1.138928

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US maket share approach

1 Damadarian Approach

Inputs (2011)

Enter revenues in current year = 1,472,684,000$

Enter size of overall market in current year = 47,200,000,000$

Enter expected growth rate in overall market = 0.025

Enter expected market share in 5 years = 0.064


Output

Expected revenues in year 5 = 3,417,757,930$

Expected compounded growth rate; Yr 1-5 = 0.18338578


Expected compounded growth rate: Yr 6-10 = 0.111583565

Expected compounded growth rate: Yr 1-10: 0.14692292

2 Take a backing out approach

what % of market share will UA need to get the projected

Used the data of sports apparel (use UA and its competitors)

Sports apparel industry

Market Share

3 Conclusion

1. In this model, UA is projected to double market share in five years; and tripl

2. In the right link, it states that the US Sports apparel market is growing at .8%

3. In this model, a 2.5% market growth rate was assumed- substantially optomi
http://www.marketresearch.com/AM-Mindpower-Solutions-v3771/Athletic-Apparel-Footwear-Outlook-Evolving-6846675/%20-%20claims%20that%20US%20sports%20apparel%20industry%20is%20growing%20at%20.8%25http://www.marketresearch.com/AM-Mindpower-Solutions-v3771/Athletic-Apparel-Footwear-Outlook-Evolving-6846675/%20-%20claims%20that%20US%20sports%20apparel%20industry%20is%20growing%20at%20.8%25

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what we have modeled Difference

4,500,000,000 (1,082,242,071)$

7,100,000,000 (1,299,680,913)$

should we weight this to apparel?

Nike UA ADDYY COLM

24,000,000,000$ 1,500,000,000$ 18,000,000,000$ 1,700,000,000$

50.8% 3.2% 38.1% 3.6%

market share in 10 years

. http://www.marketresearch.com/AM-Mindpower-Solutions-v3771/Athletic-Apparel-Footwe

istic

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The US & Global Industryanalysis models show

what UA needs to sustainits equity

How will UA continue growing market shareagainst strong incumbents

UA has increased inmarket share substantiallysince it started in the late

90's

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LULU SKINs(private) Total

1,000,000,000$ 1,000,000,000$ 47,200,000,000$

2.1% 2.1%

r-Outlook-Evolving-6846675/ - claims that US sports apparel industry is growing at .8%

Nike: has a selectionof cool to warm

compression at priceoint of 30 - 65

UA : Multiplecompression gear

offerings from $30 -$70

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Sports ApparelMarket

US = $47Bil

Global = $122bil

Reebok:compression shirtsstarting at $20.98

Many low price pointproducers: $10 and

up

Addid

UA 2015 & 2020 market share

In what waysother than itsbrand can UA

differentiate?

competitorshave stronger

globaldistribution

No patents onmaterials

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Skins: a privatecompany that is

established globally.Prices range from

$70 - $250

as: $55-$65

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Global Market share approach

1 Damadarian Approach

Inputs (2011)

Enter revenues in current year = 1,472,684,000

Enter size of overall market in current year = 1.22E+11Enter expected growth rate in overall market = 0.032



Output


Expected compounded growth rate; Yr 1-5 = 0.185456702

Expected revenues in year 10 = 6053796195

Expected compounded growth rate: Yr 6-10 = 0.119174868

Expected compounded growth rate: Yr 1-10: 0.151839116

2 Understanding UA global athlethic apparel market share 2011

current global market share 1.2%

Given UA's global psotion relative to competitors without any competitive advantage, it is

http://www.reportlinker.com/ci02121/Sport-Clothing-and-Accessories.html - reports that

3 Conclusions

1. It should first be noted that in our fcff model, UA needs to reach the goals by 2020 (8 ye

2. UA current global market share is 1.2%, I project them doubling market share in five yea
http://www.reportlinker.com/ci02121/Sport-Clothing-and-Accessories.html%20-%20reports%20that%20sports%20apparel%20industry%20will%20be%20126bil%20by%202015http://www.reportlinker.com/ci02121/Sport-Clothing-and-Accessories.html%20-%20reports%20that%20sports%20apparel%20industry%20will%20be%20126bil%20by%202015

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should perform sensitivity on expected growth rate of the market-also a scenario analysis

what we have Difference

4500000000 (1,052,231,872)$

7100000000 (1,046,203,805)$

difficult to see there market share increasing greatly

sports apparel industry will be 126bil by 2015

ars). In this model, they are given 10 years to get there.

rs, and tripling market in 10 years

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2008 American Apparel & Footware Association stats

US Apparel imports (Page 21)

(In Number of Units)

2002 2003 2004

Other man-made fiber apparel Kg. 81,919,102$ 89,610,203$ 102,679,775$% growth 9.4% 14.6%

Page 13

Profile of US Apparel consumption (Wholesale market; page 13)

(In millions of Garments)

1997 1998 1999

15,578$ 16,092$ 17,654$

% growth 3.3% 9.7%

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2005 2006 2007 2008 average

121,842,944$ 125,406,023$ 130,629,894$ 130,271,231$18.7% 2.9% 4.2% -0.3% 8.2%

2000 2001 2002 2003 2004 2005

18,690$ 17,967$ 18,193$ 18,990$ 19,052$ 20,397$

5.9% -3.9% 1.3% 4.4% 0.3% 7.1%

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It would be nice to know the past 3 years given the downtrend

2006 2007 2008 average

20,481$ 20,137.60 19,507.80

0.4% -1.7% -3.1% 2.1%

UA DCF

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Transcript of UA DCF