Financial Overview of Under Armour, Inc.

Company Background

Under Armour is an American sports clothing and accessories company. Under Armour is a supplier of casual apparel and sportswear. The global headquarter of Under Armour is located in Baltimore, Maryland. The firm has started offering footwear in the year 2006. The European headquarters are in Amsterdam’s Olympic Stadium while the additional offices are in Hong Kong, Jakarta, Indonesia, China, Canada, Toronto, Denver and Guangzhou. Under Armour was established in the year 1996. Kevin Plank is the founder of Under Armour. Under Armour is one of the leading providers of high-performance sports, and there are almost 1400 employees working in Under Armour.

The Under Armour is traded on the New York Stock Exchange, and the ticker symbol of the Under Armour is UA. The name of Auditing firm is “PWC”, Price Water House. The goal of the firm is to assist the Board of Directors of Price Water house is to monitor along with the integration in the process of financial reporting, internal control system and the financial statements and reports of the firm. The firm has to maintain the legal and regulatory requirements and the performance of the firm for the global international audit function. The qualification, performance and independence are also the purposes and the responsibility of the firm, along with the compensation and responsibility of the appointment for outside auditors

Under Armour is a sportswear firm which is built a leading brand name in the emerging market for the hi-tech athletic gear. The synthetic fibre is being used by the firm in the apparel for the marketing of its products for the enhancement of performance that are alternatives to traditional cotton or mesh gear as Under Armour gear are designed to get away moisture along with the regulation of body temperature. Under Armour had expanded its retail offering along with the rapid financial growth. More merchandizing breaks down with the market along with the reliance for the distribution for the third party. There are a number of accessories produced by Under Armour such as football, gloves, golf, eyewear bags and socks. All seasonal products, like heat gear and cold gear, is also offered by Under Armour. Under Armour’s main competition comes from large and well-established apparel and footwear companies, such as Nike and Adidas. These companies have international appeal and resources to match. The closing price of the stock on Friday, March 1st 2013 was $49.46 on the New York Stock Market.

Developments Relating to the Company
Although some may believe that the demand for sportswear apparel, footwear and accessories varies within each season, it is not this way. Demand for these products is surprisingly stable throughout the year, and through the years that follow it. Under Armour’s apparel is engineered to replace traditional non-performance fabrics in the world of athletics and fitness with performance alternatives designed and merchandised along three different gear lines: HEATGEAR, COLD GEAR, and ALLSEASONGEAR. These three different gear lines incentivize and push athletes to pursue a sports-based life throughout the year, regardless of the weather and to go through them with the best equipment and gear possible. Other factors that influence the demand for Under Armour’s sportswear apparel, footwear and accessories is the strong brand equity and awareness that their products deliver. When sports figures, teams, and other illustrious legends in the sports industry use Under Armour products, the demand for these products increases.

Finally, Under Armour’s Power in Pink Program, UA Freedom™ and other events sponsored by Under Armour increase the demand for their products. In addition to technologies created by Under Armour Inc. to provide professional and top-of-the-line sportswear to athletes throughout every season and climate, the company has also had significant technological advancements in the industry. An example that completely illustrates this point is Under Armour’s 39 Fitness and Heart Rate Monitor, the first-of-its-kind performance heart rate monitor for athletes. Under Armour’s technology, propaganda and product quality have increased the company’s size and net worth over the past few years. In the Annual Report of 2008, the company reported net income of 38,229,000. In last year’s (2012) Annual Report, Net Income was an outrageous 128,778,000.

This indicates a growth rate of 336% per cent. I believe that this trend is going to resume and that Under Armour will continue to grow. Additionally, Under Armour’s Income Statement indicates a gross margin percentage of 51.7%, 49.6%, 49.1% for 2010, 2011 and 2012 respectively. The gross margin percentage is useful for determining the value of incremental sales and to guide pricing and promotion decision. We can observe that over the years the percentage slowly decreases. With this percentage, we can predict that this trend will continue.

Understanding the Annual Report and 10K

  • As of December 31, 2012
  • Total assets = $1,157,083
  • Cash & cash equivalents = 341,841/1,157,083 = 0.29543 = 29.543%
  • Accounts receivable, net = 175,524/1,157,083 = 0.15170 = 15.170% Inventories = 319,286/1,157,083 = 0.27594 = 27.594%
  • Prepaid expenses & other current assets = 43,896/1,157,083 = 0.37937 = 37.937% Deferred income taxes = 23,051/1,157,083 = 0.01992 = 1.992%
  • Total current assets = 903,598
  • Property & equipment, net = 180,850/1,157,083 = 0.15630 = 15.630% Intangible assets, net = 4,483/1,157,083 = 0.00387 = 0.387%
  • Deferred income taxes = 22,606/1,157,083 = 0.01954 = 1.954%
  • Other long term assets = 45,546/1,157,083 = 0.03936 = 3.936% Total = 134.143%

Three largest assets: Prepaid expenses & other current assets, Cash & cash equivalents, Inventories

What method of depreciation does your company use?
Straight-line depreciation method is used for all property and equipment over the estimated useful life of the assets; 3 to 10 years for furniture, office equipment and software and plant equipment, and 10 to 35 years for site improvements, buildings and building equipment.

What method does your company use to value its inventory?
First-in, first-out (FIFO) is used to value its inventory.

  • Turnover Ratio 2012 = 955,624/319,286= 3.993
  • Turnover Ratio 2011 = 759,848/324,409 = 2.342

Inventory turnover increased by 1.651 from 2011 to 2012, indicating a higher turnover, which indicates a 70% increase in sales.

  • Total Assets = $1,157.083
  • Total Liabilities = $340.161
  • Total Stockholder’s Equity = $816.922
  • Accounting Equation: 1,157.083 (A) = 340.161 (L) + 816.922 (SE)
  • Liabilities % of Assets: (340.161/1,157.083) x 100 = 29.40%
  • SE % of Assets: (816.922/1,157.083) x 100 = 70.60%

For Under Armour, total liabilities as a percentage of total assets is 29.40%, while total SE as a percentage of total assets is 70.60%. This shows that the company’s stockholders’ equity is its primary source of funding for assets and that the company is largely financed by investments from shareholders and through the sale of its stock. This also indicates that the company is not experiencing a great amount of debt, and there are large support and income from investors for the company’s endeavours. In addition, the greatest changes in the company’s Statement of Stockholder’s Equity were Additional Paid-in Capital and Retained Earnings, which both increased significantly increased from the previous year’s balance. There was only a slight decrease to the number of shares of Class B Convertible Common Stock issued and large increases to all other accounts, which shows healthy growth of the company’s SE and continued investment.

The 10K report differs from the Annual Report in that it is an official document that must be filed with the SEC (Securities and Exchange Commission), and is expected to be entirely transparent, quantitative/qualitative data. The annual report is an informal document that provides a more general insight, and content can vary from company to company based on the message the company is trying to spread to its shareholders or whoever else may be viewing. For Under Armour, this is limited to important company officers, specific financial information it wants to share (including the Balance Sheet, Income Statement, and Statement of Stockholder’s Equity) as well as a broad and all-encompassing marketing pitch that emphasizes the value of the company (as well as encourages future investment). In contrast, the 10K contains a comprehensive financial blueprint of the company as defined by mandatory regulations, and include additional information such as executive compensation and legal proceedings.

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