Under Armour 2006 Annual Report Download - page 13

licensee in Japan. We believe that the trend toward performance products is global, and we intend to introduce
our products and simple merchandising story to athletes throughout the world. We are introducing our
performance apparel in international markets methodically, in a manner consistent with our past brand-building
strategy including selling our products directly to teams and individual athletes in these markets, thereby
providing us with product exposure to broad audiences of potential consumers in these markets.
We entered the Japanese market in 1999 through a distribution arrangement with Dome Corporation. In
2002, we entered into a license agreement with Dome, and it now produces, markets and sells our branded
products in Japan. We work closely with this licensee to develop variations of our products for the different sizes,
sports interests and preferences of the Japanese consumer. Our branded products are now sold in Japan to
professional sports teams, including baseball and soccer teams, and to approximately 1,500 independent specialty
stores and large sporting goods retailers, such as The Sports Authority, Alpen, Xebio and Sports Depot.
In 2005, we expanded our sales into Europe, beginning with the United Kingdom. We have sold our branded
products to numerous players on European soccer teams; on First Division Football clubs and multiple cricket clubs
in the United Kingdom; on soccer teams in Italy, Holland, Ireland and Germany as well as First Division Rugby
clubs in the United Kingdom, France, Italy and Ireland. In addition, in January 2006, we opened our European
headquarters in Amsterdam, from which our European sales, marketing and logistics functions are conducted. (See
Note 15 to the Consolidated Financial Statements for consolidated net revenues for each of the last three years
attributed to the United States and to all foreign countries).
Seasonality
During 2006 and 2005, we recognized approximately 69% and 76%, respectively, of our income from
operations in the last two quarters of the year, driven by increased sales volume of our products during the fall
selling season, reflecting our historical strength in fall sports, and the seasonality of our higher priced ColdGear®
line. Approximately 61% and 62% of our net revenues were generated during the last two quarters of 2006 and
2005, respectively. The level of our working capital reflects the seasonality and growth in our business. We
generally expect inventory, accounts payable and accrued expenses to be higher in the second and third quarters
in preparation for the fall selling season.
Product Design and Development
Our products are manufactured with technical fabrications produced by third parties and developed in
collaboration with our product development team. This approach enables us to select and create the best, most
technically advanced fabrics available, produced to our specifications, while focusing our product development
efforts on design, fit, climate and product end use.
We seek to constantly upgrade and improve our gearlines with the latest in textile technology, while
broadening our product offerings. Our goal, which is to deliver superior performance in all Under Armour
gearlines and products, provides our developers and licensees with a clear, overarching direction for the brand
and helps them identify new opportunities to replace basic cotton products and create performance products that
meet the changing needs of athletes. We design products with “visible technology,” utilizing color, texture and
fabrication to enhance our customers’ perception and understanding of product use and benefits.
Our product development team has significant prior industry experience at leading fabric suppliers and
branded athletic apparel and footwear companies throughout the world. This team works closely with our sports
marketing, outdoor and tactical sales teams as well as professional and collegiate athlete consumers to identify
product trends and determine market needs. For example, these teams worked closely together to identify the
opportunity and market for our Armour Fleece, which we introduced in 2006, and our UA Tech-T, a synthetic
stretch shirt which we introduced in 2005, that is intended to look and feel like cotton, but that also includes our
performance product attributes in a synthetic textile.
Sourcing, Manufacturing and Quality Assurance
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 limited number of sources. The fabric used to
manufacture our products is sourced by our manufacturers from a limited number of suppliers pre-approved by
5