Under Armour 2006 Annual Report Download - page 32

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with our consolidated financial
statements and related notes and the information contained elsewhere in this Form 10-K under the captions
“Risk Factors,” “Selected Financial Data,” and “Business.”
Overview
We are a leading developer, marketer and distributor of branded performance products for men, women and
youth. Since our founding in 1995, we have grown and reinforced our brand name and image through sales to athletes
and teams at the collegiate and professional level, as well as sales to consumers with active lifestyles. We believe that
Under Armour is a widely recognized athletic brand known for its performance and authenticity and is uniquely
positioned as a performance alternative to traditional fiber products and non-performance apparel and footwear.
Our net revenues have grown to $430.7 million in 2006 from $49.6 million in 2002. We believe that our
growth in net revenues has been driven by a growing interest in performance products and the strength of the
Under Armour brand in the marketplace relative to our competitors, as evidenced by the increases in sales of our
men’s, women’s and youth products and the introduction of footwear.
We plan to continue to increase our net revenues by building upon our relationships with existing customers
and expanding our product offerings in new and existing retail stores. By December 31, 2006, our products were
offered primarily in the United States, Canada and Japan, as well as in the United Kingdom, France and
Germany, in over 12,000 retail stores, up from approximately 500 retail stores in 2000. In addition, we have
signed strategic distribution agreements to sell our products in Italy, Scandinavia, Australia and New Zealand. In
June 2006, we launched our footwear products with the introduction of football cleats and slides. New product
offerings in 2007 will include baseball and softball cleats, which we began shipping in the fourth quarter of 2006.
In addition, we plan to expand our product offerings to include additional men’s and women’s performance
products as well as expand further into footwear and off-field outdoor sports, including hunting, fishing, running,
mountain sports, skiing and golf. As we have expanded into new product lines, sales of our existing product lines
have continued to grow.
To date, a large majority of our products have been sold in North America. We believe that our products
appeal to athletes and consumers with active lifestyles around the globe. As early as 1999, the Under Armour
brand has been sold in the Japanese market place through a third-party. We began selling our products
internationally, in the United Kingdom, through independent sales agents in 2005. We plan to increase net
revenues internationally by adding product offerings through our Japanese licensee and expanding our European
distribution. In order to support this initiative, during the first quarter of 2006 we opened a European
Headquarters in Amsterdam, Netherlands that houses our European sales, marketing and logistics functions.
Our license revenues have grown to $15.7 million in 2006 from $84.0 thousand in 2002. We have entered
into licensing agreements with established, high-quality manufacturers to produce and distribute Under Armour
branded products to further reinforce our brand identity and increase our net revenues and gross profit. In
exchange for the use of our trademarks, our licensees pay us license revenues based on their net sales of core
products of socks, hats, bags and other accessories. We seek to continue to grow our license revenues by working
with our existing licensees to offer additional products and increase their distribution, and by selectively entering
into new licensing agreements.
We believe there is an increasing recognition in the United States of the health benefits of an active lifestyle.
We believe this trend provides us with an expanding consumer base for our products. We also believe there is a
shift in consumer demand from basic cotton products to performance products such as those we offer, which are
intended to provide better performance by wicking perspiration away from the skin, helping to regulate body
temperature and enhancing comfort. We believe that these shifts in consumer preferences and lifestyles are not
unique to the United States, but are occurring in a number of markets around the world, thereby increasing our
opportunities to introduce our performance products to consumer bases.
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