Ryan wood under armour net worth

Under Armour Case Study

I. Full Strategic Analysis

Appendix 1) Specify in detail the strategy Under Armour is currently using and has used for the most recent period of “stability” (e.g. the past ten years)

• Which of the 5 Competitive Business Strategies (Porter’s Generic strategies) does under armour use?

• Identify the important complementary strategic options, corporate & functional strategies, timing choices, etc. under armour has used

• Provide cited evidence of specific actions taken by under armour during the past decade or longer to support your conclusions.

• (Appendix 2) Create BOTH

• a. side-by-side LINE CHARTS, and

• b. comparisons of CAGRs

for under armour vs. nike for fiscal years 2007-2016 in SALES (BB), STOCK PRICE (Yahoo finance), NET PROFITS (BB)

• (Appendix 3) Create tables showing side-by-side comparisons of figures for under armour vs. nike for fiscal years 2007-2016 in:

• Profitability, including ROE, ROA, and NET MARGINS (calculate)

• Activity, including TOTAL ASSET TURNOVER, INVENTORY TURNOVER, PPE TURNOVER

• Liquidity, CURRENT RATIO

• Leverage, TOTAL DEBT-TO-EQUITY

•Analyze findings

• Provide an overall assessment of How well under armour existing strategy appears to be working?

• (Appendix 4) Define the activities in under armour VALUE CHAIN

• Show a VALUE CHAIN that includes a list of all PRIMARY and SECONDARY activities of NUE and detailed descriptions of what NUE does in each activity

• (Appendix 5) Perform a VRIO ANALYSIS of RESOURCE STRENGTHS AND WEAKNESSES (Example attached)

Create a VRIO RESOURCE STRENGTHS AND WEAKNESSES INVENTORY

• (Appendix 6) List the 5 most important Strengths & 5 most important Weaknesses from Appendix 5

Use the VRIO ratings in Appendix 5 to make your selections

• (Appendix 7) Provide a Map of the Strategic groups making up the industry Rivals.

• (Appendix 8) Perform the Porter’s Five Forces Analysis (example attached)

• Create a Porter’s 5 forces analysis appendix in an excel file

• Column 1 identify >= 4 of the determinants of each of the 5 forces and for each determinant provide a brief summary of real-world evidence related to that determinant (cite sources-this must be relevant case and/or real-world data)

• Column 2 assign a rating (between 1=causes force to be weak & 5=causes force to be strong) based on the real-world evidence related to each of >= 4 determinants for each of the 5 forces identified in Col 1

• Column 3 give a brief justification for col 2 (1-5) rating based on chapter 3 material (cite source of justification)

• Average all column 2 determinants for each force to get the overall rating for each force

• Average the average ratings for the 5 forces to get an overall rating for the industry (industry attractiveness)

• (Appendix 9) perform a STEEP analysis (example attached)

• Create a STEEP analysis appendix in an excel file

• Column 1 brief description of each of >= 4 trends or events per STEEP area (cite source of trend-this must be relevant case and/or real-world data)

• Column 2 rate the probability that of each of the >= 4 trends or events per STEEP area will occur (hi, med, or lo) and give brief justification for the rating (cite source of justification-this must be relevant case and real-world data)

• Column 3 classify each trend or event as an Opportunity vs. Threat & rate probable impact on the Craft Beer Industry if each of the >= 4 trends or events per STEEP area occurs (hi, med, or lo) and give brief justification for rating(cite source of justification-this must be relevant case and real-world data)

• (Appendix 10) Create a List the 5 most important opportunities & the 5 most important threats

• List the Porter’s forces and/or individual determinants with the highest and/or lowest ratings from Appendix 8

• Limit your list to 5 opportunities and 5 threats

• Briefly Justify your selections

III. Strategy Formulation

Select 5 most important strengths, weaknesses, opportunities, and threats and develop

3 potential SO strategic alternatives from the TOWS matrix

3 potential ST strategic alternatives from the TOWS matrix

3 potential WO strategic alternatives from the TOWS matrix

3 potential WT strategic alternatives from the TOWS matrix

a. Each of the >=12 total strategic alternatives should include:

A brief description of The specific suggested action

Arthur A. Thompson The University of Alabama

Founded in 1996 by former University of Maryland football player Kevin Plank, Under Armour was the originator of sports apparel made with performance-enhancing fabrics—gear engineered to wick moisture from the body, regulate body temperature, and enhance comfort regardless of weather conditions and activity levels. It started with a simple plan to make a T-shirt that provided compres- sion and wicked perspiration off the wearer’s skin, thereby avoiding the discomfort of sweat-absorbed apparel. Under Armour’s innovative synthetic perfor- mance fabric T-shirts were an instant hit.

Nearly 20 years later, with 2015 revenues of $3.9 billion, Under Armour had a growing brand pres- ence in the roughly $70 billion multisegment retail market for sports apparel, activewear, and athletic footwear in the United States. Its interlocking “U” and “A” logo was almost as familiar and well-known as industry-leader Nike’s swoosh. Heading into 2016, Under Armour had an estimated 16 percent share of the United States market for sports apparel (up from 12.7 percent in 2012 and 11.1 percent in 2011).1 In the synthetic performance apparel segment—a mar- ket niche with estimated U.S. sales close to $7 billion in 2015—Under Armour’s market share was thought to exceed 35 percent.

However, across all segments (sports apparel, activewear, and athletic footwear) of the $250 billion global market in which the company competed, Under Armour still had a long way to go to overtake

the two long-time industry leaders—Nike and The adidas Group. In fiscal 2015, Nike had U.S. sales of $11.3 billion and global sales of $30.6 billion, and it dominated both the U.S. and global markets for athletic footwear. In the United States, Nike’s share of athletic footwear sales approached 60 percent (counting its Nike-branded footwear and sales of its Jordan and Converse brands) versus Under Armour’s less than 3 percent share. Nike’s 2015 global sales of athletic footwear were $18.3 billion (over 1 million pairs per day), dwarfing Under Armour’s 2015 global footwear sales of $678 million. Germany- based The adidas Group—the industry’s second- ranking company in terms of global revenues—had 2015 global sales of €16.9 billion (equivalent to about $18.8 billion), which included athletic footwear sales of €8.4 billion ($9.3 billion) and sports apparel sales of €7.0 billion ($7.7 billion).

Despite having global sales much smaller than its two global rivals, Under Armour was gaining ground and making its market presence felt. In North Amer- ica, Under Armour had recently overtaken adidas to become the second largest seller of sports apparel, activewear, and athletic footwear.2 Under Armour’s 2015 North American sales of $3.56 billion were over 15 percent greater than The Adidas Group’s 2015 North American sales of €2.75 billion (equivalent to about $3.03 billion). Moreover, Under Armour was

Under Armour’s Strategy in 2016—How Big a Factor Can the Company Become in the $250 Billion Global Market for Sports Apparel and Footwear?

Copyright © 2016 by Arthur A. Thompson. All rights reserved

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his mother, who was the town mayor of Kensington, Maryland. When he was a high-school sophomore, he was tossed out of Georgetown Prep for poor academic performance and ended up at Fork Union Military Academy, where he learned to accept discipline and resumed playing high school football. After gradua- tion, Plank became a walk-on special-teams football player for the University of Maryland in the early 1990s, ending his college career as the special-teams’ captain in 1995. Throughout his football career, he regularly experienced the discomfort of practicing on hot days and the unpleasantness of peeling off sweat- soaked cotton T-shirts after practice.

During his later college years and in classic entrepreneurial fashion, Plank hit on the idea of using newly available moisture-wicking, polyester- blend fabrics to make next-generation, tighter-fitting shirts and undergarments that would make it cooler and more comfortable to engage in strenuous activi- ties during high-temperature conditions.3 While Plank had a job offer from Prudential Life Insurance at the end of his college days in 1995, he couldn’t see himself being happy working in a corporate environment—he told the author of a 2011 For- tune article on Under Armour, “I would have killed myself.”4 Despite a lack of business training, Plank opted to try to make a living selling high-tech microfi- ber shirts. Plank’s vision was to sell innovative, tech- nically advanced apparel products engineered with a special fabric construction that provided supreme moisture management. A year of fabric and product testing produced a synthetic compression T-shirt that was suitable for wear beneath an athlete’s uniform or equipment, provided a snug fit (like a second skin), and remained drier and lighter than a traditional cot- ton shirt. Plank formed KP Sports as a subchapter S corporation in Maryland in 1996 and commenced selling the shirt to athletes and sports teams.

The Company’s Early Years Plank’s former teammates at high school, military school, and the University of Maryland included some 40 NFL players that he knew well enough to call and offer them the shirt he had come up with. He worked the phone and, with a trunk full of shirts in the back of his car, visited schools and train- ing camps in person to show his products. Within a short time, Plank’s sales successes were good enough that he convinced Kip Fulks, who played

growing at a faster percentage rate than both its big- ger rivals. From 2010 through 2015, Under Armour’s sales revenues grew at a compound annual rate of 30.1 percent. Nike’s revenues from Nike Brand prod- ucts during its most recent five fiscal years (June 1, 2010–May 31, 2015) grew at an 11.75 percent com- pound rate. Total revenues of The adidas Group grew at a compound rate of 7.1 percent during 2010–2015. But because Under Armour’s revenues were much smaller than those of Nike and The adidas Group, its faster percentage rate of revenue growth did not translate into bigger revenue gains in absolute dollar terms. Under Armour’s global revenues grew by just under $880 million in 2015. Nike’s global revenues in 2015 were $2.8 billion above the 2014 level, more than three times greater than UA’s dollar increase in revenues. The adidas Group’s 2015 revenue gain of €2.4 billion (about $2.66 billion) was three times bigger than UA’s dollar increase in revenues. So, in term of dollar revenues, Under Armour fell further behind Nike and The adidas Group in 2015. Conse- quently, it would take many years, if ever, for Under Armour’s revenues to approach those of Nike, which touted itself as a growth company and was led by top executives intent on preserving Nike’s standing as the global marker leader.

Nonetheless, founder and CEO Kevin Plank believed Under Armour’s potential for long-term growth was exceptional for three reasons: (1) the com- pany had built an incredibly powerful and authentic brand in a relatively short time, (2) there were signifi- cant opportunities to expand the company’s narrow product lineup and brand-name appeal into product categories where it currently had little or no market presence, and (3) the company was only in the early stages of establishing its brand and penetrating markets outside North America. Plank’s revenue objectives for Under Armour were global sales of $7.5 billion in 2018 and $10 billion in 2020. If these objectives were met and if Under Armour’s strategy proved powerful enough to sustain a revenue growth rate of 20 per- cent or more for another 5 to 10 years thereafter, then Plank’s vision of Under Armour becoming a major player on the global stage would be fulfilled.

COMPANY BACKGROUND Kevin Plank honed his competitive instinct growing up with four older brothers and playing football. As a young teenager, he squirmed under the authority of

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not just to provide gear for a particular team but for most or all of a school’s sports teams. However, the company’s partners came to recognize the merits of tapping the retail market for high-performance apparel and began making sales calls on sports apparel retailers. In 2000, Galyan’s, a large retail chain since acquired by Dick’s Sporting Goods, signed on to carry KP Sports’s expanding line of performance apparel for men, women, and youth. Sales to other sports apparel retailers began to explode, quickly making the retail segment of the sports apparel market the biggest component of the company’s revenue stream. KP Sports had revenues totaling $5.3 million in 2000, with operating income of $0.7 million. The company’s products were avail- able in some 500 retail stores. Beginning in 2000, Scott Plank, Kevin’s older brother, joined the com- pany as vice president of finance, with operational and strategic responsibilities as well.

Rapid Growth Ensues Over the next 15 years, the company’s product line evolved to include a widening variety of shirts, shorts, underwear, outerwear, gloves, and other offerings. The strategic intent was to grow the busi- ness by replacing products made with cotton and other traditional fabrics with innovatively designed performance products that incorporated a variety of technologically advanced fabrics and special- ized manufacturing techniques, all in an attempt to make the wearer feel “drier, lighter, and more com- fortable.” In 1999 the company began selling its products in Japan through a licensee. On January 1, 2002, prompted by growing operational complex- ity, increased financial requirements, and plans for further geographic expansion, KP Sports revoked its ‘‘S’’ corporation status and became a ‘‘C’’ cor- poration. The company opened a Canadian sales office in 2003 and began efforts to grow its market presence in Canada. In 2004, KP Sports became the outfitter of the University of Maryland football team and was a supplier to some 400 women’s sports teams at NCAA Division 1-A colleges and univer- sities. The company used independent sales agents to begin selling its products in the United Kingdom in 2005. SportsScanINFO estimated that as of 2004, KP Sports had a 73 percent share of the U.S. market for compression tops and bottoms, more than seven times that of its nearest competitor.7

lacrosse at Maryland, to become a partner in his enterprise. Fulks’s initial role was to leverage his connections to promote use of the company’s shirts by lacrosse players. Their sales strategy was predicated on networking and referrals. But Fulks had another critical role—he had good credit and was able to obtain 17 credit cards that were used to make pur- chases from suppliers and charge expenses.5 Opera- tions were conducted on a shoestring budget out of the basement of Plank’s grandmother’s house in Georgetown, a Washington, DC, suburb. Plank and Fulks generated sufficient cash from their sales efforts that Fulks never missed a minimum pay- ment on any of his credit cards. When cash flows became particularly tight, Plank’s older brother Scott made loans to the company to help keep KP Sports afloat (in 2011 Scott owned 4 percent of the company’s stock). It didn’t take long for Plank and Fulks to learn that it was more productive to direct their sales efforts more toward equipment managers than to individual players. Getting a whole team to adopt use of the T-shirts that KP Sports was selling meant convincing equipment managers that it was more economical to provide players with a pricey $25 high-performance T-shirt that would hold up better in the long run than a cheap cotton T-shirt.

In 1998, the company’s sales revenues and growth prospects were sufficient to secure a $250,000 small business loan from a tiny bank in Washington, DC; the loan enabled the company to move its basement operation to a facility on Sharp Street in nearby Baltimore.6 As sales continued to gain momentum, the DC bank later granted KP Sports additional small loans from time to time to help fund its needs for more working capital. Then Ryan Wood, one of Plank’s acquaintances from high school, joined the company in 1999 and became a partner. The company consisted of three jocks trying to gain a foothold in a growing, highly competitive industry against some 25+ brands, including those of Nike, adidas, Columbia, and Patagonia. Plank functioned as president and CEO; Kip Fulks was vice president of sourcing and quality assurance, and Ryan Wood was vice president of sales.

KP Sports’s sales grew briskly as it expanded its product line to include high-tech undergarments tailored for athletes in different sports and for cold temperatures as well as hot temperatures, plus jer- seys, team uniforms, socks, and other accessories. Increasingly, the company was able to secure deals

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entities. Wood decided to leave his position as senior vice president of sales at Under Armour in 2007 to run a cattle farm. Fulks assumed the position of chief operating officer at Under Armour in September 2011, after moving up the executive ranks in several capacities, chiefly those related to sourcing, qual- ity assurance, product development, and product innovation. In November 2015, following several changes in title and responsibility, Fulks was named chief marketing officer. In September 2012, Scott Plank, who was serving as the company’s executive vice president of business development after hold- ing several other positions in the company’s execu- tive ranks, retired from the company to start a real estate development company and pursue his passion for building sustainable urban environments.

Exhibit 1 summarizes Under Armour’s financial performance during 2011–2015. Exhibit 2 shows the growth of Under Armour’s quarterly revenues for 2010 through 2015. The company’s strong financial per- formance propelled its stock price from $46 in early January 2013 to a high of $124 in March 2014; the stock split 2-for-1 in April 2014. The stock price was trading in the split-adjusted range of $80–$85 in March 2016, up over about 365 percent since March 2010.

In 2015, the company announced that a new C class of nonvoting stock would be created and that in 2016 the owner of each existing share of Class A and Class B stock would receive one share of non- voting Class C stock that would be traded on the New York Stock Exchange under a different symbol (UA.C). This distribution was effectively a 2-for-1 stock split; after the distribution, Class B stock would cease to exist. The purpose of these changes was to preserve Kevin Plank’s voting power—the dual Class A and Class B voting structure was set to end when Kevin Plank owned fewer than 15 percent of the total Class A and Class B shares outstanding (his ownership percentage was just under 16 percent in mid-2015). It was further announced that the non- voting Class C shares would in the future be used for all equity-based employee compensation (stock bonuses and stock option grants) and for any stock- based acquisitions. Kevin Plank thus ended up with the same roughly 16 percent voting interest after the Class C stock distribution in April 2016 as before the distribution, a percentage he and the board of directors deemed big enough to protect the com- pany’s current governance structure from unwanted outside takeover.

As of 2005, about 90 percent of the company’s revenues came from sales to some 6,000 retail stores in the United States and 2,000 stores in Canada, Japan, and the United Kingdom. In addition, sales were being made to high-profile athletes and teams, most notably in the National Football League, Major League Baseball, the National Hockey League, and major collegiate and Olympic sports. KP Sports had 574 employees at the end of September 2005.

KP Sports Is Renamed Under Armour In late 2005, KP Sports changed its name to Under Armour and became a public company with an initial public offering (IPO) of 9.5 million shares of Class A common stock that generated net pro- ceeds of approximately $114.9 million. Simultane- ously, existing stockholders sold 2.6 million shares of Class A stock from their personal holdings. The shares were all sold at just above the offer price of $13 per share; on the first day of trading after the IPO, the shares closed at $25.30, after opening at $31 per share. Following these initial sales of Class A Under Armour stock to the general public, Under Armour’s outstanding shares of common stock con- sisted of two classes: Class A common stock and Class B common stock. Holders of Class A common stock were entitled to one vote per share, and holders of Class B common stock were entitled to 10 votes per share, on all matters to be voted on by common stockholders. All of the Class B common stock was beneficially owned by Kevin Plank, giving him 83.0 percent of the combined voting power of all the outstanding common stock and the ability to control the outcome of substantially all matters submitted to a stockholder vote, including the election of direc- tors, amendments to Under Armour’s charter, and mergers or other business combinations.

At the time of Under Armour’s IPO, Kevin Plank, Kip Fulks, and Ryan Wood were all 33 years old; Scott Plank was 39 years old. After the IPO, Kevin Plank owned 15.2 million shares of Under Armour’s Class A shares (and all of the Class B shares), Fulks owned 2.125 million Class A shares, Wood owned 2.142 million Class A shares, and Scott Plank owned 3.95 million Class A shares. All four had opted to sell a small fraction of their common shares at the time of the IPO—these accounted for a combined 1.83 million of the 2.6 million shares sold from the holdings of various directors, officers, and other

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Selected Income Statement Data 2015 2014 2013 2012 2011

Net revenues $3,963,313 $3,084,370 $2,332,051 $1,834,921 $1,472,684

Cost of goods sold 2,057,766 1,152,164 1,195,381 955,624 759,848

Gross profit 1,905,547 1,512,206 1,136,670 879,297 712,836

Selling, general and administrative expenses 1,497,000 1,158,251 871,572 670,602 550,069

Income from operations 408,547 353,955 265,098 208,695 162,767

Interest expense, net (14,628) (5,335) (2,933) (5,183) (3,841)

Other expense, net (7,234) (6,410) (1,172) (73) (2,064)

Income before income taxes 386,685 342,210 260,993 203,439 156,862

Provision for income taxes 154,112 134,168 98,663 74,661 59,943

Net income $ 232,573 $ 208,042 $ 162,330 $ 128,778 $ 96,919

Net income per common share

Basic $ 1.08 $ 0.98 $ 0.77 $ 0.62 $ 0.47

Diluted 1.05 0.95 0.75 0.61 0.46

Weighted average common shares outstanding

Basic 215,498 213,227 210,696 208,686 206,280

Diluted 220,868 219,380 215,958 212,760 210,104

Selected Balance Sheet Data (in 000s)

Cash and cash equivalents $ 129,852 $ 593,175 $ 347,489 $ 341,841 $ 175,384

Working capital* 1,019,953 1,127,772 702,181 651,370 506,056

Inventories at year-end 783,031 536,714 469,006 319,286 324,409

Total assets 2,868,900 2,095,083 1,577,741 1,157,083 919,210

Total debt and capital lease obligations, including current maturities 669,000 284,201 152,923 61,889 77,724

Total stockholders’ equity 1,668,222 1,350,300 1,053,354 816,922 636,432

Selected Cash Flow Data

Net cash provided by operating activities ($ 44,104) $ 219,033 $ 120,070 $ 199,761 $ 15,218

*Working capital is defined as current assets minus current liabilities.

Sources: Company 10-K reports for 2015, 2013, and 2012.

EXHIBIT 1 selected Financial Data for Under Armour, Inc., 2011–2015 (in 000s, except per share amounts)

UNDeR ARMOUR’s sTRATeGY IN 2016 Under Armour’s mission was “to make all athletes better through passion, design, and the relentless pursuit of innovation.” The company’s principal business activities in 2016 were the development, marketing, and distribution of branded performance apparel, footwear, and accessories for men, women,

and youth. The brand’s moisture-wicking apparel products were engineered in many designs and styles for wear in nearly every climate to provide a per- formance alternative to traditional products. Under Armour sport apparel was worn by athletes at all levels, from youth to professional, and by consum- ers with active lifestyles. In 2013, Under Armour acquired MapMyFitness, a provider of website ser- vices and mobile apps to fitness-minded consumers

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activities. In 2016, the special emphasis being placed on products for women was expected to result in women’s sales of $1 billion.

∙ Targeting additional consumer segments for the company’s ever-expanding lineup of performance products.

∙ Increasing its sales and market share in the ath- letic footwear segment.

∙ Securing additional distribution of Under Armour products in the retail marketplace in North America via not only store retailers and catalog retailers but also through Under Armour factory outlet and specialty stores and sales at the com- pany’s website.

∙ Expanding the sale of Under Armour products in foreign countries and becoming a global competi- tor in the world market for sports apparel, athletic footwear, and performance products.

∙ Growing global awareness of the Under Armour brand name and strengthening the appeal of Under Armour products worldwide.

∙ Growing the company’s connected fitness business.

Product Line Strategy For a number of years, expanding the company’s product offerings and marketing them at multi- ple price points had been a key element of Under Armour’s strategy. The goal for each new item added to the lineup of offerings was to provide consumers with a product that was a superior

across the world; Under Armour used this acquisi- tion, along with several follow-on acquisitions in 2014–2015, to create what it termed a “connected fitness” business offering digital fitness subscrip- tions and licenses, mobile apps, and other fitness- tracking and nutritional tracking solutions to athletes and fitness-conscious individuals across the world. Kevin Plank expected the company’s connected fit- ness strategic initiative to become a major revenue driver in the years to come—in 2015, UA’s con- nected fitness revenues grew by 178 percent and generated 1.3 of total net revenues.

In 2015, 70.7 percent of Under Armour’s total net sales were apparel items, with athletic footwear products, accessories, and connected fitness offer- ings accounting for the remainder—see Exhibit 3A. Just over 87 percent of Under Armour’s 2015 sales were in North America; however, UA’s top execu- tives believed the company’s international presence was still in the infant stage (Exhibit 3B) and that there was a huge opportunity for the company to grow sales to distributors and retailers outside North America by 30 to 50 percent annually for many years to come.

Growth Strategy The company’s growth strategy in 2016 consisted of seven strategic initiatives:

∙ Continuing to broaden the company’s product offerings to men, women, and youth for wear in a widening variety of sports and recreational

Quarter 1 (Jan.–March)

Quarter 2 (April–June)

Quarter 3 (July–Sept.)

Quarter 4 (Oct.–Dec.)

Revenues

Percent Change from Prior Year’s Quarter 1 Revenues

Percent Change from Prior Year’s Quarter 2 Revenues

Percent Change from Prior Year’s Quarter 3 Revenues

Percent Change from Prior Year’s Quarter 4

2010 $229,407 14.7% $204,786 24.4% $ 328,568 21.9% $ 301,166 35.5%

2011 312,699 36.3% 291,336 42.3% 465,523 41.7% 403,126 33.9%

2012 384,389 23.0% 369,473 26.8% 575,196 23.6% 505,863 25.5%

2013 471,608 22.7% 454,541 23.0% 723,146 25.7% 682,756 35.0%

2014 641,607 36.0% 609,654 34.1% 937,908 29.7% 895,201 31.1%

2015 804,941 25.5% 783,577 28.5% 1,204,109 28.4% 1,170,686 30.8%

EXHIBIT 2 Growth in Under Armour’s Quarterly Revenues, 2010–2015 (in 000s)

Sources: Company 10-K reports, 2015, 2013, 2012, and 2010.

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In sharp contrast to a sweat-soaked cotton T-shirt that could weigh two to three pounds, HeatGear was engineered with a microfiber blend featuring what Under Armour termed a “Moisture Transport Sys- tem” that ensured the body would stay cool, dry, and light. HeatGear was offered in a variety of tops and bottoms in a broad array of colors and styles for wear in the gym or outside in warm weather.

ColdGear Under Armour high-performance fab- rics were appealing to people participating in cold- weather sports and vigorous recreational activities like snow skiing who needed both warmth and moisture-wicking protection from a sometimes overheated body. ColdGear was designed to wick moisture from the body while circulating body heat from hotspots to maintain core body temperature. All ColdGear apparel provided dryness and warmth in a single light layer that could be worn beneath a jersey, uniform, protective gear or ski-vest, or other cold-weather outerwear. ColdGear products gener- ally were sold at higher price levels than other Under

alternative to the traditional products of rivals— striving to always introduce a superior product would, management believed, help foster and nour- ish a culture of innovation among all company per- sonnel. According to Kevin Plank, “we focus on creating products you don’t know you need yet, but once you have them, you won’t remember how you lived without them.”8

Apparel The company designed and merchan- dised three lines of apparel gear intended to regulate body temperature and enhance comfort, mobility, and performance regardless of weather conditions: HEATGEAR® for hot-weather conditions, COLD- GEAR® for cold-weather conditions, and ALLSEA- SONGEAR® for temperature conditions between the extremes.

HeatGear HeatGear was designed to be worn in warm to hot temperatures under equipment or as a single layer. The company’s first compression T-shirt was the original HeatGear product and was still one of the company’s signature styles in 2015.

EXHIBIT 3 Composition of Under Armour’s Revenues, 2012–2015

B. Net Revenues by Geographic Region (in thousands of $)

2015 2014 2013 2012

Dollars Percent Dollars Percent Dollars Percent Dollars Percent

North America $3,455,737 87.2% $2,796,374 90.7% $2,193,739 94.1% $ 997,816 93.7%

International 454,161 11.5 268,771 8.7 138,312 5.9 66,111 6.3

Connected fitness 53,415 1.3 19,225 0.6 1,068 0.0 — —

Total net revenues $3,963,313 100.0% $3,084,370 100.0% $2,332,051 100.0% $1,063,927 100.0%

Sources: Company 10-K reports, 2015, 2013, 2012 and 2010.

2015 2014 2013 2012

Dollars Percent Dollars Percent Dollars Percent Dollars Percent

Apparel $2,801,062 70.7% $2,291,520 74.3% $1,762,150 75.6% $ 853,493 80.2%

Footwear 677,744 17.1 430,987 14.0 298,825 12.8 127,175 12.0

Accessories 346,885 8.8 275,409 8.9 216,098 9.3 43,882 4.1

Total net sales $3,825,691 96.6% $2,997,916 97.2% $2,277,073 97.6% $1,024,550 96.3%

License revenues 84,207 2.1 67,229 2.2 53,910 2.4 39,377 3.7

Connected fitness 53,415 1.3 19,225 0.6 1,068 0.0 — —

Total net revenues $3,963,313 100.0% $3,084,370 100.0% $2,332,051 100.0% $1,063,927 100.0%

A. Net Revenues by Product Category (in thousands of $)

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In early 2014, UA introduced a new premium run- ning shoe, the SpeedForm Apollo, with a retail price of $100. Kevin Plank believed this new shoe model, which was a follow-on to the $120 SpeedForm RC introduced in 2013, had the potential to be one of the company’s defining products and help take UA to the next level in the market for athletic footwear, particularly in the running shoe category where the company was striving to make major inroads. UA’s marketing tagline for the SpeedForm Apollo was “this is what fast feels like.”

To capitalize on a recently signed long-term endorsement contract with pro basketball superstar Stephen Curry, Under Armour began marketing a Stephen Curry Signature line of basketball shoes in 2014; the so-called Curry One models had a price point of $120. This was followed by a Curry Two collection in 2015 at a price point of $130, a Curry 2.5 collection (at a price point of $135) during the NBA playoffs in May–June 2016, and a Curry Three collection in fall 2016. Under Armour sought to leverage its signing of pro golfer Jordan Spieth to a 10-year endorsement contract in early 2015 by introducing an all-new golf shoe collection in April 2016—Spieth had a spectacular year on the Profes- sional Golf Association (PGA) tour in 2015 and was named 2015 PGA Tour Player of the Year, an honor based on votes by his peers; the 2016 golf shoe col- lection had three styles, ranging in price from $160 to $220. Also in 2016, Under Armour debuted its first “smartshoe” (called the SpeedForm Gemini 2 Record Equipped) at a price point of $150; smartshoe models were equipped with the capability to connect automatically to UA’s connected fitness website and record certain activities in the wearer’s fitness track- ing account. Another high-tech shoe introduced in Q1 2016, called the UA Architect and priced at $300, had a 3-D printed midsole; initial supplies sold out in 19 minutes at the company’s website. New 3-D iterations were scheduled for launch later in 2016.

To support the company’s attempt to rapidly grow its sales of athletic footwear, UA had doubled the size of its footwear team to 230 people in 2015 and planned to add more staff in time for the 2016 Summer Olympics and other important 2016 sport- ing events.

Accessories Under Armour’s accessory line in 2016 included gloves, socks, headwear, bags, knee- pads, custom-molded mouth guards, inflatable

Armour gear lines. A new ColdGear Infrared line, with a new fabric technology, was introduced in fall 2013 and in 2015 zip-up ColdGear items utilized the company’s MagZip™ zippers, a magnetic quick zip closure that the company claimed “fixed zippers.”

AllSeasonGear AllSeasonGear was designed to be worn in temperatures between the extremes of hot and cold and used technical fabrics to keep the wearer cool and dry in warmer temperatures while preventing a chill in cooler temperatures.

Each of the three apparel lines contained three fit types: compression (tight fit), fitted (athletic fit), and loose (relaxed). In 2016, Under Armour intro- duced apparel items containing MicroThread, a fab- ric technology that used elastomeric (stretchable) thread to create a cool moisture-wicking microcli- mate, prevented clinging and chafing, allowed gar- ments to dry 30 percent faster and be 70 percent more breathable than similar Lycra construction, and were so lightweight as to “feel like nothing.” It also began using a newly developed insulation called Reactor in selected ColdGear items and introduced a new apparel collection with an exclusive CoolS- witch coating on the inside of the fabric that pulled heat away from the skin, allowing the wearer to feel cooler and perform longer.

Footwear Under Armour began marketing footwear products for men, women, and youth in 2006 and has expanded its footwear line every year since. Its 2016 offerings included football, base- ball, lacrosse, softball, and soccer cleats; slides; performance training footwear; running footwear; basketball footwear; golf shoes; and outdoor foot- wear. Under Armour’s athletic footwear was light, breathable, and built with performance attributes for athletes. Innovative technologies (Charged Cushion- ing®, ClutchFit®, Micro G®, and SpeedForm®) were used to provide stabilization, directional cushioning, and moisture management, and all models and styles were engineered to maximize the wearer’s comfort and control.

New footwear collections for men, women, and youth were introduced regularly, sometimes monthly and often seasonally. Most new models and styles incorporated fresh technological features of one kind or another. Since 2012, Under Armour had more than tripled the number of footwear styles/models priced above $100 per pair. Its best-selling offerings were in the basketball and running shoe categories.

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was the second-best-selling item (behind Curry Two footwear models) on UA’s e-commerce website in the first quarter of 2016. Kevin Plank was so enthusias- tic about the long-term potential of Under Armour’s connected fitness business that he had boosted the company’s team of engineers and software develop- ers from 20 to over 350 during 2014–2015.

Licensing Under Armour had licensing agree- ments with a number of firms to produce and market Under Armour apparel, accessories, and equipment. Under Armour product, marketing, and sales teams were actively involved in all steps of the design pro- cess for licensed products in order to maintain brand standards and consistency. During 2015, licensees sold UA-branded collegiate and Major League Base- ball apparel and accessories, baby and kids’ apparel, team uniforms, socks, water bottles, eyewear, inflat- able footballs and basketballs, and certain other equipment items. Under Armour pre-approved all products manufactured and sold by licensees, and UA’s quality assurance personnel were assigned the task of ensuring that licensed products met the same quality and compliance standards as the products Under Armour sold directly.

Marketing, Promotion, and Brand Management Strategies Under Armour had an in-house marketing and pro- motions department that designed and produced most of its advertising campaigns to drive con- sumer demand for its products and build awareness of Under Armour as a leading performance athletic brand. The company’s total marketing expenses were $417.8 million in 2015, $333.0 million in 2014, $246.5 million in 2013, $205.4 million in 2012, $167.9 million in 2011, $128.2 million in 2010, and $108.9 million in 2009. These totals included the costs of sponsoring events and various sports teams, the costs of athlete endorsements, and the costs of ads placed in a variety of television, print, radio, and social media outlets. All were included as part of selling, general, and administrative expenses shown in Exhibit 1.

Sports Marketing A key element of Under Armour’s marketing and promotion strategy was to promote the sales and use of its products to high- performing athletes and teams on the high school, collegiate, and professional levels. This strategy

basketballs and footballs, and eyewear designed to be used and worn before, during, and after competi- tion. All of these accessories featured performance advantages and functionality similar to other Under Armour products. For instance, the company’s baseball batting, football, golf, and running gloves included HEATGEAR® and COLDGEAR® technol- ogies and were designed with advanced fabrications to provide various high-performance attributes that differentiated Under Armour gloves from those of rival brands.

Connected Fitness In December 2013, Under Armour acquired MapMyFitness, which served one of the largest fitness communities in the world at its website, www.mapmyfitness.com, and offered a diverse suite of websites and mobile applica- tions under its flagship brands MapMyRun and MapMyRide. Utilizing GPS and other advanced technologies, MapMyFitness provided users with the ability to map, record, and share their workouts. MapMyFitness had 22 million registered users as of March 2014, 30 percent of which were located out- side the United States. Under Armour then acquired European fitness app Endomondo and food-logging app MyFitnessPal. As part of a larger effort to cre- ate the company’s “next big thing,” a multifaceted connected fitness dashboard that used four indepen- dently functioning apps (MapMyFitness, MyFit- nessPal, Endomondo, and UA Record™) to enable subscribers to log workouts, runs, and foods eaten, and to see on a digital dashboard measures relating to their sleep, fitness, activity, and nutrition. Next, in late 2015, UA introduced a connected fitness sys- tem called Under Armour HealthBox™ that con- sisted of a multifunctional wrist band (that measured sleep, resting heart rate, steps taken, and workout intensity), heart rate strap, and a smart scale (that tracked body weight, body fat percentage, and prog- ress toward a weight goal); the wrist band was water resistant, could be worn 24/7, and had Bluetooth connectivity with UA Record; the smart scale was also Wi-Fi-enabled and synced data to UA Record. Under Armour launched its first HealthBox com- mercial in April 2016.

As of April 2016, Under Armour had over 160 million users of its various connected fitness offerings.9 New user registrations were growing at the rate of 100,000 per day. UA’s launch of its $400 UA HealthBox bundle of connected fitness products

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Armour became the Official Performance Footwear Supplier of Major League Baseball. Starting with the 2011–2012 season, UA was granted rights by the NBA to show ads and promotional displays of play- ers who were official endorsers of Under Armour products in their NBA game uniforms wearing UA- branded basketball footwear. Under Armour was the official supplier of competition suits, uniforms, and training resources for a number of U.S. teams in the 2014 Winter Olympics in Russia and the 2016 Sum- mer Olympics in Brazil.

Internationally, Under Armour was also using sponsorships to broaden consumer awareness of its brand in Canada, Europe, and South America. In Canada, it was an official supplier of performance apparel to Hockey Canada, had advertising rights at many locations in the Air Canada Center during the Toronto Maple Leafs’ home games, and was the Official Performance Product Sponsor of the Toronto Maple Leafs. In Europe, Under Armour was the official supplier of performance apparel to the Hannover 96 and Tottenham Hotspur soccer teams and the Welsh Rugby Union, among others. In 2014 and 2015, Under Armour became the official match- day and training wear supplier for the Colo-Colo soccer club in Chile, the Cruz Azul soccer team in Mexico, and the São Paulo soccer team in Brazil.

In addition to sponsoring teams and events, Under Armour’s brand-building strategy was to secure the endorsement of individual athletes. One facet of this strategy was to sign endorse- ment contracts with newly emerging sports stars— examples included Milwaukee Bucks point guard Brandon Jennings, Golden State Warriors point guard Stephen Curry, Charlotte Bobcats point guard Kemba Walker, U.S. professional skier and Olympic gold medal winner Lindsey Vonn, 2012 National League (baseball) Most Valuable Player and World Series Champion Buster Posey, 2012 National League Rookie of the Year Bryce Harper of the Washington Nationals, Derrick Williams (the number two pick in the 2011 NBA draft), tennis phenom Sloane Stephens, WBC super-welterweight boxing champion Camelo Alvarez, and PGA golfer Jordan Spieth. But the company’s growing ros- ter of athletes also included established stars: NFL football players Tom Brady, Ray Lewis, Brandon Jacobs, Arian Foster, Miles Austin, Julio Jones, Devon Hester, Vernon Davis, Patrick Willis, San- tana Moss, and Anquan Boldin; triathlon champion

included entering into outfitting agreements with a variety of collegiate and professional sports teams, sponsoring an assortment of collegiate and pro- fessional sports events, and selling Under Armour products directly to team equipment managers and to individual athletes.

Management believed that having audiences see Under Armour products (with the interlocking UA logo prominently displayed) being worn by athletes on the playing field helped the company establish on-field authenticity of the Under Armour brand with consumers. Considerable effort went into giv- ing Under Armour products broad exposure at live sporting events, as well as on television, in maga- zines, and on a wide variety of Internet sites. Exhibit 3 shows the Under Armour logo and examples of its use on Under Armour products.

Going into 2016, Under Armour was the offi- cial outfitter of all the men’s and women’s athletic teams at Notre Dame, Boston College, Northwestern University, Texas Tech University, the University of Maryland, the University of South Carolina, the U.S. Naval Academy, the University of Wisconsin, the University of California, Auburn University, and the University of South Florida and selected sports teams at the University of Illinois, North- western University, the University of Minnesota, the University of Utah, the University of Indiana, the University of Missouri, Georgetown University, the University of Delaware, the University of Hawaii, Southern Illinois University, Temple University, Wichita State University, South Dakota State University, Wagner College, Whittier College, and La Salle University. All told, it was the official outfitter of over 100 Division I men’s and wom- en’s collegiate athletic teams, growing numbers of high school athletic teams, and several Olympic sports teams; and it supplied sideline apparel and fan gear for many collegiate teams as well. In addi- tion, Under Armour sold products to high-profile professional athletes and teams, most notably in the National Football League, Major League Base- ball, the National Hockey League, and the National Basketball Association (NBA). Since 2006, Under Armour had been an official supplier of football cleats to the National Football League (NFL). Under Armour became the official supplier of gloves to the NFL beginning in 2011, and it began supplying the NFL with training apparel for athletes attending NFL tryout camps beginning in 2012. In 2011 Under

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to establish optimal placement of its products. In “big-box” sporting goods stores, it was important to be sure that Under Armour’s growing variety of products gained visibility in all of the various departments (hunting apparel in the hunting goods department, footwear and socks in the footwear department, and so on). Except for the retail stores with Under Armour concept shops, company per- sonnel worked with retailers to employ in-store fixtures and displays that highlighted the UA logo and conveyed a performance-oriented, athletic look (chiefly through the use of life-size athlete manne- quins). The merchandising strategy was not only to enhance the visibility of Under Armour products but also reinforce the message that the company’s brand was distinct from those of competitors.

Media and Promotion Under Armour adver- tised in a variety of national digital, broadcast, and print media outlets, as well as social and mobile media. Its advertising campaigns included a vari- ety of lengths and formats and frequently included prominent athletes and personalities. Advertising and promotional campaigns in 2015–2016 featured Michael Phelps, Stephen Curry, Jordan Spieth, Tom Brady, Lindsey Vonn, Misty Copeland, and Dwayne Johnson.

Distribution Strategy Under Armour products were available in roughly 17,000 retail store locations worldwide in 2016. Under Armour also sold its products directly to con- sumers through its own factory outlet and specialty stores, and website.

Wholesale Distribution In 2016, Under Armour had close to 11,000 points of distribution in North America. The company’s biggest retail account was Dick’s Sporting Goods, which in 2015 accounted for 11.5 percent of the company’s net revenues. Other important retail accounts in the United States included The Sports Authority (which filed for bankruptcy in 2016 and was liqui- dating its stores at auction as of May 2016—prior to the bankruptcy, Sports Authority had been UA’s second largest retail account), Academy Sports and Outdoors, Hibbett Sporting Goods, Modell’s Sport- ing Goods, Bass Pro Shops, Cabela’s, Footlocker, Finish Line, The Army and Air Force Exchange Service, and such well-known department store

Chris “Macca” McCormack; professional baseball players Ryan Zimmerman, Jose Reyes, and eight others; U.S. Women’s National Soccer Team play- ers Heather Mitts and Lauren Cheney; U.S. Olympic and professional volleyball player Nicole Branagh; Olympic snowboarder Lindsey Jacobellis; and U.S. Olympic swimmer Michael Phelps. In January 2014, Under Armour signed ballerina soloist Misty Cope- land to a multiyear contract; later in 2014, Copeland was featured in Under Armour’s largest advertising campaign to date for its women’s apparel offerings. In 2016, Under Armour signed champion wrestler, actor, and producer Dwayne “The Rock” Johnson to play an integral role in promoting UA’s connected fitness apparel, footwear, and accessory products.

Under Armour spent approximately $126.5 mil- lion in 2015 for athlete and superstar endorsements, various team and league sponsorships, athletic events, and other marketing commitments, compared to about $90.1 million in 2014, $57.8 million in 2013, $53.0 million in 2012, $43.5 million in 2011, and $29.4 million in 2010.10 The company was con- tractually obligated to spend a minimum of $276.2 million for endorsements, sponsorships, events, and other marketing commitments during 2016–2018.11 Under Armour did not know precisely what its future endorsement and sponsorship costs would be because its contractual agreements with most ath- letes were subject to certain performance-based vari- ables and because it was actively engaged in efforts to sign additional endorsement contracts and sponsor additional sports teams and athletic events.

Retail Marketing and Product Presentation The primary thrust of Under Armour’s retail market- ing strategy was to increase the floor space exclu- sively dedicated to Under Armour products in the stores of its major retail accounts. The key initiative here was to design and fund Under Armour “con- cept shops”—including flooring, in-store fixtures, product displays, life-size athlete mannequins, and lighting—within the stores of its major retail cus- tomers. This shop-in-shop approach was seen as an effective way to gain the placement of Under Armour products in prime floor space, educate con- sumers about Under Armour products, and create a more engaging and sales-producing way for con- sumers to shop for Under Armour products.

In stores that did not have Under Armour con- cept shops, Under Armour worked with retailers

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company’s principal vehicles for sales growth in upcoming years. To help spur e-commerce sales, the company was endeavoring to establish a clearer con- nection between its website offerings and the brand initiatives being undertaken in retail stores. It was also enhancing the merchandising techniques and storytelling regarding the UA products being mar- keted at its websites. Management estimated that in 2016 some 90 million customers would shop at the company’s websites and that e-commerce sales would be in the neighborhood of $1.25 billion.

Product Licensing In 2015, 2.1 percent of the company’s net revenues ($84.2 million) came from licensing arrangements to manufacture and distrib- ute Under Armour branded products. Under Armour preapproved all products manufactured and sold by its licensees, and the company’s quality assurance team strived to ensure that licensed products met the same quality and compliance standards as company- sold products. Under Armour had relationships with several licensees for team uniforms, eyewear, and custom-molded mouth guards, as well as the distri- bution of Under Armour products to college book- stores and golf pro shops.

Distribution outside North America Under Armour’s first strategic move to gain international distribution occurred in 2002 when it established a relationship with a Japanese licensee, Dome Cor- poration, to be the exclusive distributor of Under Armour products in Japan. The relationship evolved, with Under Armour making a minority equity investment in Dome Corporation in 2011 and Dome gaining distribution rights for South Korea. Dome sold Under Armour branded apparel, footwear, and accessories to professional sports teams, large sport- ing goods retailers, and several thousand indepen- dent retailers of sports apparel in Japan and South Korea. Under Armour worked closely with Dome to develop variations of Under Armour products to bet- ter accommodate the different sports interests and preferences of Japanese and Korean consumers.

A European headquarters was opened in 2006 in Amsterdam, the Netherlands, to conduct and over- see sales, marketing, and logistics activities across Europe. The strategy was to first sell Under Armour products directly to teams and athletes and then leverage visibility in the sports segment to access broader audiences of potential consumers. By 2011, Under Armour had succeeded in selling products to

chains as Macy’s, Nordstrom, Belk, Dillard’s, and Lord & Taylor. In Canada, the company’s biggest customers were Sportchek International and Sport- man International. Roughly 75 percent of all sales made to retailers were to large-format national and regional retail chains. The remaining 25 percent of wholesale sales were to lesser-sized outdoor and other specialty retailers, institutional athletic depart- ments, leagues, teams, and fitness specialists. Inde- pendent and specialty retailers were serviced by a combination of in-house sales personnel and third- party commissioned manufacturer’s representatives. Under Armour’s 2015 worldwide wholesale sales to all types of retailers were $2.7 billion.

Direct-to-Consumer Sales In 2015, 30.4 percent of Under Armour’s net revenues were generated through direct-to-consumer sales, versus 23 percent in 2010 and 6 percent in 2005; the direct-to- consumer channel included sales of discounted merchandise at Under Armour’s Factory House stores and full- price sales at company-owned retail stores (which the company called Brand Houses), and the com- pany’s global website (www.underarmour.com and in-country websites. The Factory House stores gave Under Armour added brand exposure and helped familiarize consumers with Under Armour’s grow- ing lineup of products while also functioning as an important channel for selling discontinued, out- of-season, and/or overstocked products at discount prices without undermining the prices of Under Armour merchandise being sold at the stores of retailers carrying Under Armour products, the com- pany’s Brand Houses, and the company’s website. Going into 2016, Under Armour had 143 factory outlet stores in North America; these stores attracted some 50 million shoppers in 2015.

Under Armour opened its first company-owned Brand House store to showcase its branded apparel at a mall in Annapolis, Maryland. Over the next several years, Brand House stores were opened in high-traffic retail locations in the United States. At year-end 2015, the company was operating 10 Under Armour full-price Brand House stores in North America. Plans called for having some 200 Factory House and Brand House locations in North America by year-end 2018.12

UA management’s e-commerce strategy called for sales at www.underarmour.com (and 26 other in-country websites as of 2016) to be one of the

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“We are committed to being a global brand with global stories to tell, and we are on our way.” Sales of Under Armour products outside North America accounted for 11.5 percent of the company’s net revenues in 2015, up from 8.7 percent in 2014 and 6.3 percent in 2012 (see Exhibit 3B). Under Armour saw growth in foreign sales as the company’s biggest market opportunity in upcoming years, chiefly because of the sheer number of people residing outside the United States who could be attracted to patronize the Under Armour brand. In 2013 Nike generated about 55 per- cent of its revenues outside the United States and adi- das got about 60 percent of its sales outside its home market of Europe—these big international sales per- centages for Nike and adidas were a big reason why Under Armour executives were confident that grow- ing UA’s international sales represented an enormous market opportunity for the company, despite the stiff competition it could expect from its two bigger global rivals. As a consequence, the company was entering foreign country markets at a brisk pace. The near-term target was to grow international revenues to 18 percent of total revenues by year-end 2018. Top management believed that the company could accelerate its growth in international sales by close to 50 percent annually during 2016–2018 (and perhaps a few years beyond).

Headed into 2016, Under Armour products were already being sold in China, Japan, Great Britain, Ireland, Germany, Austria, Belgium, the Netherlands, Greece, Italy, Spain, Sweden, Brazil, Chile, Bolivia, Ecuador, Peru, Mexico, Malaysia, Thailand, Aus- tralia, New Zealand, Philippines, South Korea, and Singapore—albeit in a relatively limited number of locations in many instances. In some of these coun- tries, sales of Under Armour products were wholly or partly the result of efforts by licensees and local partners. But UA’s internal efforts to secure interna- tional sales were accelerating. The company had 48 Factory Houses and Brand Houses in Brazil, China, Chile, and Mexico at year-end 2015. Plans called for having some 800 such stores in 40+ countries outside North America by year-end 2018. Exhibit 4 shows UA’s geographic expansion plan.

Product Design and Development Top executives believed that product innovation— as concerns both technical design and aesthetic design—was the key to driving Under Armour’s sales growth and building a stronger brand name.

Premier League Football clubs and multiple run- ning, golf, and cricket clubs in the United Kingdom; soccer teams in France, Germany, Greece, Ireland, Italy, Spain, and Sweden; as well as First Division Rugby clubs in France, Ireland, Italy, and the United Kingdom. Sales to European retailers quickly fol- lowed on the heels of gains being made in the sports team segment. By year-end 2012, Under Armour had 4,000 retail customers in Austria, France, Germany, Ireland, and the United Kingdom and was generat- ing revenues from sales to independent distributors who resold Under Armour products to retailers in Italy, Greece, Scandinavia, and Spain.

In 2010–2011, Under Armour began selling its products in parts of Latin America and Asia. In Latin America, Under Armour sold directly to retail- ers in some countries and in other countries sold its products to independent distributors who then were responsible for securing sales to retailers. In 2014, Under Armour launched efforts to Under Armour products available in over 70 of Brazil’s premium points of sale and e-commerce hubs; expanded sales efforts were also initiated in Chile and Mexico.

In 2011, Under Armour opened a retail show- room in Shanghai, China, the first of a series of steps to begin the long-term process of introducing Chinese athletes and consumers to the Under Armour brand, showcase Under Armour products, and learn about Chinese consumers. Additional retail locations in Shanghai and Beijing soon followed, some operated by local partners. By April 2014, there were five company-owned and franchised retail locations in Mainland China that merchandised Under Armour products; additionally, the Under Armour brand had been recently introduced in Hong Kong through a partnership with leading retail chain GigaSports.

Under Armour began selling its branded apparel, footwear, and accessories to independent distribu- tors in Australia, New Zealand, and Taiwan in 2014; these distributors were responsible for securing retail accounts to merchandise Under Armour products to consumers. The distribution of Under Armour prod- ucts to retail accounts across Asia was handled by a third-party logistics provider based in Hong Kong.

In 2013, Under Armour organized its interna- tional activities into four geographic regions—North America (the United States and Canada), Latin America, Asia-Pacific, and Europe/Middle East/ Africa (EMEA). In his Letter to Shareholders in the company’s 2013 Annual Report, Kevin Plank said,

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∙ Products with a COLDBLACK® technology fab- ric that repelled heat from the sun and kept the wearer cooler outside.

∙ COLDGEAR® Infrared, a ceramic print technol- ogy applied to the inside of garments that pro- vided wearers with lightweight warmth.

Under Armour executives projected that the innovative CHARGED COTTON and STORM product lines would generate combined revenues of $500 million in 2016.13 In 2012, in partnership with Swiss Company, Schoeller, Under Armour introduced products with COLDBLACK technol- ogy which repelled heat from the sun and kept the wearer cooler outside.

Sourcing, Manufacturing, and Quality Assurance Many of the high-tech specialty fabrics and other raw materials used in UA products were developed by third parties and sourced from a limited number of preapproved specialty fabric manufacturers; no fabrics were manufactured in-house. Under Armour executives believed outsourcing fabric production enabled the company to seek out and utilize which- ever fabric suppliers were able to produce the lat- est and best performance-oriented fabrics to Under Armour’s specifications, while also freeing more time for UA’s product development staff to concen- trate on upgrading the performance, styling, and overall appeal of existing products and expanding the company’s overall lineup of product offerings.

In 2015, approximately 54 percent of the fabric used in UA products came from five suppliers, with primary locations in Malaysia, Taiwan, and Mexico. Because a big fraction of the materials used in UA products were petroleum-based synthetics, fabric

UA products were manufactured with techni- cally advanced specialty fabrics produced by third parties. The company’s product development team collaborated closely with fabric suppliers to ensure that the fabrics and materials used in UA’s prod- ucts had the desired performance and fit attributes. Under Armour regularly upgraded its products as next- generation fabrics with better performance characteristics became available and as the needs of athletes changed. Product development efforts also aimed at broadening the company’s product offer- ings in both new and existing product categories and market segments. An effort was made to design products with “visible technology,” utilizing color, texture, and fabrication that would enhance custom- ers’ perception and understanding of the use and benefits of Under Armour products.

Under Armour’s product development team had significant prior industry experience at leading fabric and other raw material suppliers and branded athletic apparel and footwear companies throughout the world. The team worked closely with Under Armour’s sports marketing and sales teams as well as professional and collegiate athletes to identify product trends and determine market needs. Collaboration among the company’s product development, sales, and sports marketing team had proved important in identifying the opportunity and market for four recently launched product lines and fabric technologies:

∙ CHARGED COTTON™ products, which were made from natural cotton but performed like the products made from technically advanced syn- thetic fabrics, drying faster and wicking moisture away from the body.

∙ STORM Fleece products, which had a unique, water-resistant finish that repelled water without stifling airflow.

EXHIBIT 4 Under Armour’s schedule for expanding Its Geographic Reach, 2016–2018

2016 2017 2018

Europe, Middle East, Africa France, Turkey, North Africa, South Africa

Bulgaria, Croatia, Romania, Czech Republic, Hungary, Ukraine, Poland, Slovakia, Russia, and most of the remaining countries of Africa

Asia-Pacific Indonesia, Vietnam, Brunei India

Latin America Paraguay, Uruguay Argentina

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inventories of individual products and total inven- tory. The amounts of seasonal products it ordered from manufacturers were based on current book- ings, the need to ship seasonal items at the start of the shipping window in order to maximize the floor space productivity of retail customers, the need to adequately stock its Factory House and Brand House stores, and the need to fill customer orders. Excess inventories of particular products were either shipped to its Factory House stores or earmarked for sale to third-party liquidators.

However, the growing number of individual items in UA’s product line and uncertainties sur- rounding upcoming consumer demand for individual items made it difficult to accurately forecast how many units to order from manufacturers and what the appropriate stocking requirements were for many items. New inventory management practices were instituted in 2012 to better cope with stocking require- ments for individual items and avoid excessive inven- tory buildups. Year-end inventories of $783.0 million in 2015 equated to 138.9 days of inventory and inven- tory turnover of 2.63 turns per year.

COMPeTITION The $250 billion global market for sports apparel, athletic footwear, and related accessories was frag- mented among some 25 brand-name competitors with diverse product lines and varying geographic coverage and numerous small competitors with specialized-use apparel lines that usually operated within a single country or geographic region. Industry participants included athletic and leisure shoe com- panies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel, and equipment. In 2012, the global market for ath- letic footwear was about $75 billion and was fore- casted to reach about $85 billion in 2018; growth was expected to be driven by rising population, increas- ing disposable incomes, rising health awareness, and the launching of innovative footwear designs and technology.14 The global market for athletic and fit- ness apparel, estimated to be $135 billion in 2012, was forecast to grow about 4.3 percent annually and reach about $185 billion by 2020.15 Exhibit 5 shows a representative sample of the best-known companies and brands in selected segments of the sports apparel, athletic footwear, and sports equipment industry.

costs were subject to crude oil price fluctuations. The cotton fabrics used in the CHARGED COTTON products were also subject to price fluctuations and varying availability based on cotton harvests.

In 2013, substantially all UA products were made by 44 primary manufacturers, operating in 16 countries; 10 manufacturers produced approximately 45 percent of UA’s products. Approximately 63 percent of UA’s products were manufactured in China, Jordan, Viet- nam, and Indonesia. All manufacturers purchased the fabrics they needed from the 5 fabric suppliers preap- proved by Under Armour. All of the makers of UA products were evaluated for quality systems, social compliance, and financial strength by Under Armour’s quality assurance team, prior to being selected and also on an ongoing basis. The company strived to qualify multiple manufacturers for particular product types and fabrications and to seek out contractors that could perform multiple manufacturing stages, such as procuring raw materials and providing finished prod- ucts, which helped UA control its cost of goods sold. All contract manufacturers were required to adhere to a code of conduct regarding quality of manufactur- ing, working conditions, and other social concerns. However, the company had no long-term agreements requiring it to continue to use the services of any man- ufacturer, and no manufacturer was obligated to make products for UA on a long-term basis. UA had sub- sidiaries in Hong Kong, Panama, Vietnam, Indonesia, and China to support its manufacturing, quality assur- ance, and sourcing efforts for its products.

Under Armour had a 17,000-square-foot Special Make-Up Shop located at one of its distribution facil- ities in Maryland where it had the capability to make and ship customized apparel products on tight dead- lines for high-profile athletes and teams. While these apparel products represented a tiny fraction of Under Armour’s revenues, management believed the facility helped provide superior service to select customers.

Inventory Management Under Armour based the amount of inventory it needed to have on hand for each item in its prod- uct line on existing orders, anticipated sales, and the need to rapidly deliver orders to customers. Its inventory strategy was focused on (1) having suffi- cient inventory to fill incoming orders promptly and (2) putting strong systems and procedures in place to improve the efficiency with which it managed its

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EXHIBIT 5 Major Competitors and Brands in selected segments of the sports Apparel, Athletic Footwear, and Accessory Industry, 2015

Performance Apparel for Sports (baseball, football, basketball, softball, volleyball, hockey, lacrosse, soccer, track & field, and other action sports)

Performance-Driven Athletic Footwear

Training/Fitness Clothing

• Nike • Under Armour • Eastbay • adidas • Russell

• Nike • Reebok • adidas • New Balance • Saucony • Puma • Rockport • Converse • Ryka • Asics • Li Ning

• Nike • Under Armour • Eastbay • adidas • Puma • Fila • lululemon athletica • Champion • Asics • SUGOI • Li Ning

Performance Activewear and Sports-Inspired Lifestyle Apparel

Performance Skiwear

Performance Golf Apparel

• Polo Ralph Lauren • Lacoste • Izod • Cutter & Buck • Timberland • Columbia • Puma • Li Ning • Many others

• Salomon • North Face • Descente • Columbia • Patagonia • Marmot • Helly Hansen • Bogner • Spyder • Many others

• Footjoy • Polo Golf • Nike • adidas • Puma • Under Armour • Ashworth • Cutter & Buck • Greg Norman • Many others

As Exhibit 5 indicates, the sporting goods indus- try consisted of many distinct product categories and market segments. Because the product mixes of dif- ferent companies varied considerably, it was com- mon for the product offerings of industry participants to be extensive in some segments, moderate in oth- ers, and limited to nonexistent in still others. Conse- quently, the leading competitors and the intensity of competition varied significantly from market segment to market segment. Nonetheless, competition tended to be intense in most every segment with substantial sales volume and typically revolved around perfor- mance and reliability, the breadth of product selec- tion, new product development, price, brand-name strength and identity through marketing and promo- tion, the ability of companies to convince retailers to stock and effectively merchandise their brands, and capabilities of the various industry participants to sell

directly to consumers through their own retail/factory outlet stores and/or at their company websites. It was common for the leading companies selling athletic footwear, sports uniforms, and sports equipment to actively sponsor sporting events and clinics and to con- tract with prominent and influential athletes, coaches, professional sports teams, colleges, and sports leagues to endorse their brands and use their products.

Nike was the clear global market leader in the sporting goods industry, with a global market share in athletic footwear of about 25 percent and a sports apparel share of 5 percent. The adidas Group, with businesses that produced athletic footwear, sports uniforms, fitness apparel, sportswear, and a variety of sports equipment and marketed them across the world, was the second largest global competitor. Profiles of these two major competitors of Under Armour follow.

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Nike, Inc. Incorporated in 1968, Nike was engaged in the design, development, and worldwide market- ing and selling of footwear, sports apparel, sports equipment, and accessory products. Its principal businesses in fiscal years 2014–2015 are shown in the table below.

Nike had global sales of $30.6 billion and net income of $3.3 billion in fiscal 2015 ending May 31, 2015. Nike was the world’s largest seller of athletic footwear, athletic apparel, and athletic equipment and accessories, with over 40,000 retail accounts world- wide, 931 company-owned stores, 52 distribution centers, and selling arrangements with independent distributors and licensees in over 190 countries—see Exhibit 6. About 54 percent of Nike’s sales came from outside the United States in both 2014 and 2015. Nike had about 24,000 retail accounts in the United States that included footwear stores, sporting goods stores, athletic specialty stores, department stores, and skate, tennis, and golf shops. During fis- cal 2015, Nike’s three largest customers accounted for approximately 26 percent of sales in the United

Businesses

Fiscal 2014 Revenues

(in millions)

Fiscal 2015 Revenues

(in millions)

Nike Brand footwear (over 800 models and styles) $16,208 $18,318

Nike Brand apparel 8,109 8,636

Nike Brand equipment for a wide variety of sports 1,670 1,632

Converse (a designer and marketer of athletic footwear, apparel, and accessories) 1,684 1,982

Note: Revenues for Nike’s wholly owned subsidiary, Hurley—a designer and marketer of action sports and youth lifestyle footwear and apparel, including shorts, tees, tanks, hoodies, and swimwear—were roughly $260 million annually and were allocated to the Nike Brand footwear and apparel business segments.

EXHIBIT 6 Nike’s Worldwide Retail and Distribution Network, 2015

United States Foreign Countries

• ~24,000 retail accounts • ~20,000 retail accounts

• 185 Nike factory outlet stores • 512 Nike factory outlet stores

• 33 Nike and NIKETOWN stores • 73 Nike and NIKETOWN stores

• 92 Converse retail and factory outlet stores • 7 Converse retail and factory outlet stores

• 29 Hurley stores • —

• 7 Distribution centers • 45 Distribution centers

• Company website (www.nike.com) • Independent distributors and licensees in over 190 countries • Company website (www.nike.com)

States; its three largest customers outside the United States accounted for about 12 percent of total non-U.S. sales. In fiscal 2015, Nike had sales of $6.6 billion at its company-owned stores and web- sites, up from $3.5 billion in fiscal 2012.

Nike expected to grow annual revenues to $50 billion in 2020 and had an ongoing target of annual earnings per share growth in the 14–16 per- cent range. To help reach its 2020 sales goal, Nike was planning to grow its website sales from about $1 billion in 2015 to over $7 billion in five years, to double sales of Jordan-branded footwear to $4.5 billion, and to grow sales of products for women from $5.7 billion to over $11 billion. For the first nine months of fiscal 2016, Nike reported sales of $30.3 billion and net income of $3.3 billion.

Principal Products Nike’s athletic footwear models and styles were designed primarily for spe- cific athletic use, although many were worn for casual or leisure purposes. Running, training, basketball, soccer, sport-inspired casual shoes, and kids’ shoes were the company’s top-selling footwear categories.

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and professional team and league logos. Nike-brand offerings in sports equipment included bags, socks, sport balls, eyewear, timepieces, electronic devices, bats, gloves, protective equipment, and golf clubs. Nike was also the owner of the Converse brand of athletic footwear and the Hurley brand of swimwear, assorted other apparel items, and surfing gear.

Exhibit 7 shows a breakdown of Nike’s sales of footwear, apparel, and equipment by geographic region for fiscal years 2013–2015.

It also marketed footwear designed for baseball, football, golf, lacrosse, cricket, outdoor activities, tennis, volleyball, walking, and wrestling. The com- pany designed and marketed Nike-branded sports apparel and accessories for most all of these same sports categories, as well as sports-inspired lifestyle apparel, athletic bags, and accessory items. Foot- wear, apparel, and accessories were often marketed in “collections” of similar design or for specific pur- poses. It also marketed apparel with licensed college