Columbia Sportswear 2010 Annual Report Download - page 57

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cost of sales:
The expenses that are included in cost of sales include all direct product and conversion-related costs, and
costs related to shipping, duties and importation. Specific provisions for excess, close-out or slow moving
inventory are also included in cost of sales. In addition, some of the Company’s products carry limited warranty
provisions for defects in quality and workmanship. A warranty reserve is established at the time of sale to cover
estimated costs based on the Company’s history of warranty repairs and replacements and is recorded in cost of
sales.
Selling, general and administrative expense:
Selling, general and administrative expense consists of commissions, advertising, other selling costs,
personnel-related costs, planning, receiving finished goods, warehousing, depreciation and other general
operating expenses.
Shipping and handling costs:
Shipping and handling fees billed to customers are recorded as revenue. The direct costs associated with
shipping goods to customers are recorded as cost of sales. Inventory planning, receiving and handling costs are
recorded as a component of SG&A expenses and were $57,901,000, $55,867,000 and $57,700,000 for the years
ended December 31, 2010, 2009 and 2008, respectively.
Stock-based compensation:
Stock-based compensation cost is estimated at the grant date based on the award’s fair value and is
recognized as expense over the requisite service period using the straight-line attribution method. The Company
estimates stock-based compensation for stock options granted using the Black-Scholes option pricing model,
which requires various highly subjective assumptions, including volatility and expected option life. Further, the
Company estimates forfeitures for stock-based awards granted which are not expected to vest. If any of these
inputs or assumptions changes significantly, stock-based compensation expense may differ materially in the
future from that recorded in the current period. Assumptions are evaluated and revised as necessary to reflect
changes in market conditions and the Company’s experience. Estimates of fair value are not intended to predict
actual future events or the value ultimately realized by people who receive equity awards. The fair value of
service-based and performance-based restricted stock units is discounted by the present value of the estimated
future stream of dividends over the vesting period using the Black-Scholes model.
Advertising costs:
Advertising costs are expensed in the period incurred and are included in selling, general and administrative
expenses. Total advertising expense, including cooperative advertising costs, was $77,978,000, $65,204,000 and
$72,237,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
Through cooperative advertising programs, the Company reimburses its wholesale customers for some of
their costs of advertising the Company’s products based on various criteria, including the value of purchases
from the Company and various advertising specifications. Cooperative advertising costs are included in expenses
because the Company receives an identifiable benefit in exchange for the cost, the advertising may be obtained
from a party other than the customer, and the fair value of the advertising benefit can be reasonably estimated.
Cooperative advertising costs were $7,259,000, $10,978,000 and $16,351,000 for the years ended December 31,
2010, 2009 and 2008, respectively.
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