Under Armour 2010 Annual Report Download - page 15

fluctuations and shortages. Beginning in 2011 we are offering CHARGED COTTON™ products using primarily
cotton fabrics that also may be subject to price fluctuations and shortages.
Substantially all of our products are manufactured by unaffiliated manufacturers and, in 2010, six
manufacturers produced approximately 45% of our products. In 2010, our products were manufactured by 26
primary manufacturers, operating in 22 countries. During 2010, approximately 55% of our products were
manufactured in Asia, 25% in Central and South America, 10% in Mexico and 5% in the Middle East. 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. Where appropriate, we strive to qualify multiple
manufacturers for particular product types and fabrications. We also seek out vendors that can perform multiple
manufacturing stages, such as procuring raw materials and providing finished products, which helps us to control
our 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 apparel and offices in Guangzhou, China to support our manufacturing, quality assurance
and sourcing efforts for footwear.
We also manufacture a limited number of apparel products on-premises in our quick turn, Special Make-Up
Shop located at one of our distribution facilities in Maryland. Through this 17,000 square-foot shop, we are able
to 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 located
approximately 15 miles from our Baltimore, Maryland headquarters. One 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 2011, with two options to extend the lease term for up to four years in total. The other facility is a
high-bay facility built in 2003, in which we lease and occupy approximately 308,000 square feet. The lease term
expires in April 2013, with one option to extend the lease term for an additional five years. In addition, we
distribute our products in North America through a third-party logistics provider with primary locations in
California and in Florida. The agreement with this provider continues until December 2012. In 2010, we began to
distribute some of our international products through a third-party logistics provider in Hong Kong. We also
distribute our products in Europe through a third-party logistics provider based out of Venlo, The Netherlands.
This agreement continues until April 2013. We believe our distribution facilities and space available at our third-
party logistics providers will be adequate to meet our short term needs. We expect to expand to additional
facilities in the future.
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 over the long term by putting systems and procedures in place to improve our inventory
management. 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 ordering our seasonal products based on current bookings, shipping seasonal
product at the start of the shipping window in order to maximize the productivity of floor space at our retailers
and earmarking any seasonal excess for sales through our factory house stores and liquidation sales to third
parties.
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