INTERNAL ANALYSIS FINANCES Introduction External Analysis Internal Analysis

INTERNAL ANALYSIS FINANCES

Introduction External Analysis Internal Analysis • Cost/ Expenses • $3. 8 million for eco-friendly commitment in 2009 • $100 k annually on field testing • $350 k to repair 12 k garments/yr = $29 per garment • Less than 1% revenues on marketing • 1% revenues on environmental causes • $200 k in kind donations to eco-causes Strategic Alternatives Implementation

Introduction External Analysis Internal Analysis Strategic Alternatives Implementation VAST MAJORITY OF REVENUES COMES FROM 3 MAJOR PRODUCT LINES Contribution Margin per product line $ 100 000 $ 82 134 $ 52 426 $ 60 000 $ 40 000 $ 20 970 $ 20 000 $ 10 485 $ 8 738 Hard Goods Other misc $Sportsware Technical Outware Technical Knits POTENTIAL TO RATIONALIZE PRODUCTS IN ORDER TO ENHANCE INVENTORY MANAGEMENT

Introduction External Analysis Internal Analysis Strategic Alternatives Implementation DIRECT SALES HAVE HIGHEST MARGINS, BUT GENERATE THE HIGHEST % RETURNS 80% 68% 65% 40% 20% 0% 2, 6% Wholesale 12, 9% 2, 6% Retail Gross margins Catalogue/internet Return % OPPORTUNITY TO IMPROVE DIRECT SALES CHANNEL OR FOCUS ON RETAIL

Introduction External Analysis Internal Analysis Strategic Alternatives Implementation PATAGONIA HAS BEEN PERFORMING EXTREMELY WELL COMPARED TO THE INDUSTRY Yo. Y % Revenue Growth 10, 0% 5, 0% 8, 0% 5, 0% 4, 0% 7, 0% 6, 0% 0, 0% -5, 0% -10, 0% -15, 0% 2005 -9, 7% 2006 2007 2008 2009 -9, 6% -11, 9% -14, 2% -15, 2% -20, 0% FOCUS ON SUSTAINABILITY AND WEALTHY CUSTOMERS HAS PAID OFF CND Industry Patagonia

Introduction External Analysis Internal Analysis Strategic Alternatives Implementation PATAGONIA HAS BEEN PERFORMING EXTREMELY WELL COMPARED TO THE INDUSTRY Yo. Y % Growth in profits 30, 0% 23, 1% 20, 0% 10, 0% 4, 1% 2, 7% 5, 2% 10, 3% 8, 9% 0, 0% -10, 0% -20, 0% 2005 -10, 1% 2006 2007 -3, 7% 2008 2009 -1, 5% -30, 0% -40, 0% -50, 0% -60, 0% -51, 2% PATAGONIA WAS ABLE TO PROTECT PROFITS EVEN DURING RECESSIONARY TIMES CND Industry Patagonia

Introduction External Analysis Internal Analysis Strategic Alternatives Implementation MAINTAINING GROWTH AND EMPLOYEE SATISFACTION COMES AT A COST 1800 1600 1400 1200 1000 800 600 400 200 0 1602 400 Sales ('000$)/ Employee 559 226 Columbia North Face Nike 513 238 Timberland Patagonia PATAGONIA HAS SOME OF THE LOWEST SALES PER EMPLOYEES IN ITS INDUSTRY

Introduction External Analysis Internal Analysis Strategic Alternatives Implementation PATAGONIA MAINTAINS 4 X BELOW AVERAGE D/E RATIO 35, 0% 30, 0% 25, 0% 20, 0% 15, 0% 10, 0% 5, 0% 0, 0% 31, 0% 9, 0% 2, 5% 2, 0% Columbia VF Corporation Nike Patagonia INCREASING DEBT TO AVERAGE COULD YIELD 14 M$ IN CAPITAL TO FUEL GROWTH D/E Ratio Average

Introduction External Analysis Internal Analysis Strategic Alternatives Implementation INTRODUCTION OF RECYCLING PROGRAM DID HAVE A POSITIVE IMPACT ON SALES Yo. Y % Sales Growth 10% 8% 8% 7% 7% 5% 6% 6% 4% 4% 2% 0% -2% 2003 -1% 2004 2005 2006 2007 PROGRAM ENHANCEMENT HAS THE POTENTIAL TO FUEL TOP LINE GROWTH 2008 2009

Introduction External Analysis Internal Analysis Strategic Alternatives Implementation HISTORY SHOWED THAT NEW INITIATIVE CAN HURT PROFITABILITY 12% 46% 10% 44% 8% 42% 6% 40% 4% 38% 2% 36% 0% 34% 2002 2003 2004 2005 2006 2007 2008 2009 NEED TO FOCUS ON KEEPING COSTS UNDER CONTROL Operating Margins as% Sales SGA as % Sales