Under Armour 2007 Annual Report Download - page 17

manufactured in Asia, 25% in Central and South America and 19% in Mexico. All manufacturers are evaluated
for quality systems, social compliance and financial strength by our quality assurance team prior to being
selected and on an ongoing basis. We strive to qualify multiple manufacturers, where appropriate, for particular
product types and fabrications. We also actively seek out vendors that can perform multiple manufacturing
stages, such as procuring fabric and providing finished products, helping us to reduce the cost of goods sold. We
enter into a variety of agreements with our manufacturers, including non-disclosure and confidentiality
agreements, and we require that all of our manufacturers adhere to a code of conduct regarding quality of
manufacturing and working conditions and other social concerns. We do not, however, have any long-term
agreements requiring us to utilize any manufacturer, and no manufacturer is required to produce our products in
the long-term. We have an office in Hong Kong to support our manufacturing, quality assurance and sourcing
efforts for our apparel products and an office in Guangzhou, China to support our manufacturing, quality
assurance and sourcing efforts for our footwear products.
We also manufacture a limited number of apparel products on-premises in our quick turn, Special Make-Up
Shop located at our distribution facility in Glen Burnie, Maryland. This 17,000 square-foot shop is stocked with
fabric in multiple colors to help us build and ship apparel products on tight deadlines for high-profile athletes,
leagues and teams. While the apparel products manufactured in the quick turn, Special Make-Up Shop represent
an immaterial portion of our total net revenues, we believe the facility helps us to provide superior service to
select customers.
Distribution and Inventory Management
We package and distribute the majority of our products through two distribution facilities in Glen Burnie,
Maryland, approximately 15 miles from our Baltimore, Maryland headquarters. The first facility is a high-bay
facility built in 2000, in which we currently lease and occupy approximately 359,000 square feet. The lease term
expires in September 2009, with three options to extend the lease term for up to six years in total. The second
facility is a high-bay facility built in 2003, in which we lease and occupy approximately 200,000 square feet,
with increasing requirements to lease up to a total of 308,000 square feet by May 2009. The lease term expires in
April 2013, with one option to extend the lease term for an additional five years. This distribution facility became
fully operational in the second quarter of 2007. We believe our distribution facilities, including the excess
available space within those facilities, will be adequate to meet our short term needs. We expect to expand to
additional facilities in the future.
In 2007, we successfully piloted a new warehouse management system. We expect it to be fully operational
in the second quarter of 2008 for the distribution facilities described above.
We also distribute our products in Europe through a third-party logistics provider based out of Tilburg, The
Netherlands. This agreement continues until June 2009.
Inventory management is important to the financial condition and operating results of our business. We
manage our inventory levels based on any existing orders, anticipated sales and the rapid-delivery requirements
of our customers. Our inventory strategy is focused on continuing to meet consumer demand while improving
our inventory efficiency. We expect to achieve this by being in stock in core product offerings, which includes
products that we plan to have available for sale over the next twelve months and beyond at full price. In addition,
we expect to achieve our inventory strategy by shipping seasonal product at the start of the shipping window in
order to maximize the productivity of our floor sets and earmarking any seasonal excess for our retail outlet
stores.
Our practice, and the general practice in the apparel and footwear industries, is to offer retail customers the
right to return defective or improperly shipped merchandise. Because of the relatively long lead-times for
production and design of our products, from time to time we commence production of new products before we
receive any orders for those products, which affects our inventory levels for new products.
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