Under Armour 2005 Annual Report Download - page 18

acceptance as consumer preferences could shift rapidly to different types of performance or other sports apparel
or away from these types of products altogether, and our future success depends in part on our ability to
anticipate and respond to these changes. There can be no assurance that we will respond to changing preferences
in a timely manner. Failure to anticipate and respond to changing consumer preferences could lead to, among
other things, lower sales and excess inventory levels.
Even if we are successful in anticipating consumer preferences, our ability to adequately react to and
address those preferences will in part depend upon our continued ability to develop and introduce innovative
products, and there can be no assurance of our ability to do so. In addition, there can be no assurance that our
strategy of continuing to expand the range of performance products that we offer into new product categories will
be well received by consumers or will not dilute our brand image and result in a shift of consumer preferences
away from our product lines. The failure to effectively introduce new products and enter into new product
categories that are accepted by consumers could result in a decrease in net revenues and excess inventory levels,
which could have a material adverse effect on our financial condition and result in a decline in the price of our
Class A Common Stock.
If the financial condition of our retail customers declines, our financial condition and results of operations
could be adversely impacted.
We extend credit to our customers based on an assessment of a customer’s financial condition, generally
without requiring collateral. We face increased risk of order reduction or cancellation when dealing with
financially ailing customers or customers struggling with economic uncertainty. A slowing economy in our key
markets or a continued decline in consumer purchases of sporting goods generally could have an adverse effect
on the financial health of our retail customers, which could in turn have an adverse effect on our sales, our ability
to collect on receivables, our ability to borrow under our revolving credit facility and our financial condition.
If we encounter problems with our distribution system, our ability to deliver our products to the market
would be adversely affected.
We rely on our distribution facility in Glen Burnie, Maryland, which became fully operational in July 2004, for
substantially all of our product distribution. Our distribution facility includes computer controlled and automated
equipment, which means the operations are complicated and may be subject to a number of risks related to security
or computer viruses, the proper operation of software and hardware, electronic or power interruptions or other
system failures. In addition, because substantially all of our products are distributed from one location, our
operations could also be interrupted by floods, fires or other natural disasters near our distribution facility. We
maintain business interruption insurance, but it may not adequately protect us from the adverse effects that could be
caused by significant disruptions in our distribution facility, such as the long-term loss of customers or an erosion of
our brand image. In addition, our distribution capacity is dependent on the timely performance of services by third
parties, including the shipping of product to and from our distribution facility. If we encounter problems with our
distribution facility, our ability to meet customer expectations, manage inventory, complete sales and achieve
objectives for operating efficiencies could be materially adversely affected.
We rely on third-party suppliers and manufacturers to provide fabrics for and to produce our products,
and we have limited control over these suppliers and manufacturers and may not be able to obtain quality
products on a timely basis or in sufficient quantity.
Many of the specialty fabrics used in our products are technically advanced textile products developed by
third parties and may be available, in the short-term, from a very limited number of sources. Substantially all of
our products are manufactured by unaffiliated manufacturers, and, in 2005, three manufacturers produced over
35% of our products. We have no long-term contracts with our suppliers or manufacturing sources, and we
compete with other companies for fabrics, raw materials, production and import quota capacity.
There can be no assurance that there will not be a significant disruption in the supply of fabrics or raw
materials from current sources or, in the event of a disruption, that we would be able to locate alternative
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