Under Armour 2006 Annual Report Download - page 15

Inventory management is important to the financial condition and operating results of our business. We
address inventory management by focusing our efforts on processes such as retail merchandising, strategic
liquidation through our own retail outlet stores, and forecasting and maximizing the flexibility of our supply
chain to ensure rapid reaction to demand. We manage our inventory levels based on any existing orders,
anticipated sales and the rapid-delivery requirements of our customers. Our practice, and the general practice in
the apparel industry, 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.
Intellectual Property
We believe we own the material trademarks used in connection with the marketing, distribution and sale of
all of our products, both domestically and internationally, where our products are currently either sold or
manufactured. Our major trademarks include the Under Armour logo and design and Under Armour wordmark,
both of which are registered in the United States, the European Union, Japan, Taiwan, China and Canada, among
other places. We also own trademark registrations for HeatGear®, ColdGear®, AllSeasonGear®and Advantage is
Undeniable®, and we have applied to register our Protect This House™, Under Armour logo/Metal, Duplicity™,I
Think You Hear Us Coming™and Click Clack™trademarks. We also own domain names for our primary
trademarks and hold copyrights for our Good-Bye Girl™and Protect this House™commercials. We intend to
continue to strategically register, both domestically and internationally, trademarks and copyrights we utilize
today and those we develop in the future. We will continue to aggressively police our trademarks and pursue
those who infringe, both domestically and internationally.
We believe that the distinctive marks that we use in connection with our products are important in building our
brand image and distinguishing our products from those of others. These marks are among our most valuable assets. In
addition to our distinctive marks, we also place significant value on our trade dress, which is the overall image and
appearance of our products, and we believe that our trade dress helps to distinguish our products in the marketplace.
The intellectual property rights in the technology, fabrics and processes used to manufacture our products
generally are owned or controlled by our suppliers. As a result, our ability to obtain patent protection for our
products is limited and we currently do not own any fabric or process patents. We focus our efforts on obtaining
patent protection for what we believe to be strategic, new product applications in the marketplace. We have filed
patent applications in connection with certain of our products that we believe offer a unique utility or function,
such as the Duplicity Sports Bra, the ColdGear®Hood and the Grippy Shirt. More recently we have filed a utility
patent application in connection with the athletic shoe soles that we used in our baseball cleats as well as design
patent applications for our cleated footwear and certain styles of our apparel. We will continue to file patent
applications where we deem appropriate to protect our inventions and designs, and we expect the number of
applications to grow as our business grows and as we continue to innovate in a range of product categories.
Competition
The market for active sports apparel and footwear is highly competitive and includes many new competitors as
well as increased competition from established companies expanding their production and marketing of performance
products. The fabrics and technology used in manufacturing our products are generally not unique to us, and we do
not currently own any fabric or process patents or copyrights. Many of our competitors are large apparel, footwear
and sporting goods companies with strong worldwide brand recognition and significantly greater resources than us,
such as Nike and Adidas. We also compete with other manufacturers, including those specializing in outdoor and
tactical apparel, and private label offerings of certain retailers, including some of our customers.
In addition, purchasing decisions by retailers and their decisions regarding the limited use of floor space in
their stores means that we also must compete with others to develop relationships with retailers for their limited
attention. We believe we have been successful in this area because of the good relationships we have developed
and as a result of the strong sales of our products. However, if retailers earn greater margins from our
competitors’ products, they may favor the display and sale of those products.
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