Under Armour 2014 Annual Report Download - page 53

based upon shipment of licensed products sold by our licensees. Sales taxes imposed on our revenues fro
m
p
roduct sales are
p
resented on a net basis on the consolidated statements of income and therefore do not im
p
ac
t
net revenues or costs of goods sold.
We record reductions to revenue for estimated customer returns, allowances, markdowns and discounts. We
base our estimates on historical rates of customer returns and allowances as well as the s
p
ecific identification o
f
o
utstanding returns, markdowns and allowances that have not yet been received by us. The actual amount o
f
customer returns and allowances, which is inherently uncertain, may differ from our estimates. If we determine
that actual or expected returns or allowances are significantly higher or lower than the reserves we established,
we would record a reduction or increase, as a
pp
ro
p
riate, to net sales in the
p
eriod in which we make such a
determination. Provisions for customer specific discounts are based on contractual obligations with certain majo
r
customers. Reserves for returns, allowances, markdowns and discounts are recorded as an offset to accounts
r
eceivable as settlements are made through offsets to outstanding customer invoices. As of December 31, 2014
and 2013, there were
$
68.9 million and
$
43.8 million, respectively, in reserves for customer returns, allowances
,
markdowns and discounts
.
Allowance for Doubtful Accounts
We make ongoing estimates relating to the collectability of accounts receivable and maintain an allowance
f
or estimated losses resulting from the inability of our customers to make required payments. In determining th
e
amount of the reserve, we consider historical levels of credit losses and significant economic development
s
within the retail environment that could impact the ability of our customers to pay outstanding balances and
make judgments about the creditworthiness of significant customers based on ongoing credit evaluations.
B
ecause we cannot predict future changes in the financial stability of our customers, actual future losses from
uncollectible accounts may differ from estimates. If the financial condition of customers were to deteriorate,
r
esulting in their inability to make payments, a larger reserve might be required. In the event we determine
a
smaller or larger reserve is appropriate, we would record a benefit or charge to selling, general and administrativ
e
ex
p
ense in the
p
eriod in which such a determination was made. As of December 31, 2014 and 2013, the
allowance for doubtful accounts was
$
3.7 million and
$
2.9 million, respectively
.
Inventory Valuation and Reserve
s
We value our inventory at standard cost which approximates landed cost, using the first-in, first-out metho
d
o
f cost determination. Market value is estimated based u
p
on assum
p
tions made about future demand and retai
l
market conditions. If we determine that the estimated market value of our inventory is less than the carrying
value of such inventory, we record a charge to cost of goods sold to reflect the lower of cost or market. If actua
l
market conditions are less favorable than those we projected, further adjustments may be required that would
increase the cost of goods sold in the period in which such a determination was made.
Goodwill, Intangible Assets and Long-Lived Asset
s
Goodwill and intangible assets are recorded at their estimated fair values at the date of acquisition and ar
e
allocated to the reporting units that are expected to receive the related benefits. Goodwill and indefinite lived
intangible assets are not amortized and are required to be tested for impairment at least annually or sooner
whenever events or changes in circumstances indicate that the assets may be impaired. In conducting an annual
impairment test, we first review qualitative factors to determine whether it is more likely than not that the fai
r
value of the reporting unit is less than its carrying amount. If factors indicate that is the case, we perform
a
quantitative assessment over relevant reporting units, analyzing the expected present value of future cash flows
and quantify the amount of impairment, if any. We perform our annual impairment tests in the fourth quarter o
f
each fiscal year
.
We continually evaluate whether events and circumstances have occurred that indicate the remaining
estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be
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