Summary

Under Armour's most recent 10K contains a number of financial reporting "red flags" that reflect a cavalier attitude toward financial reporting transparency.

Analysis

I was not surprised by the Company's most recent actions and actually have been using UA as a “poster child” for the lack of financial reporting transparency in my graduate classes and analyst seminars for several years.  A review of the Company's most recent 10K finds a number issues that should concern the investment community.
   

•  Lack of income statement detail and note disclosure (overly aggregated without
   supporting detail).
•  Shipping and handling costs are reported as SG&A, not Cost of Goods Sold which
    makes comparability more difficult.
•  Significant concentration of credit risk in receivables.
•  Existence of significant deferred financing costs.
•  Unusual inventory costing method and inadequate reserves.
•  Potential intangible asset impairment issues.
•  Selection of atypical stock option expensing method and option expense amounts
   are excessive given operating performance.
•  Derivative gains and losses are reported in other income and expense.
•  CEO related party transactions.
•  Significant amount of operating leases are reported off balance sheet.
•   Management Issues  
    - Relative youth and inexperience of management team
    - CEO has more than a majority of voting control due to Class B shares
    -There is a new CFO and current Chief Supply Chain Officer served at Nautica (a
      failed company with a history of cash flow manipulations)


Analyses are solely the work of the authors and have not been edited or endorsed by GLG.