Under Armour 2014 Annual Report Download - page 66

Inventor
i
es
I
nventories consist primarily of finished goods. Costs of finished goods inventories include all cost
s
incurred to bring inventory to its current condition, including inbound freight, duties and other costs. Th
e
Company values its inventory at standard cost which approximates landed cost, using the first-in, first-ou
t
method of cost determination. Market value is estimated based u
p
on assum
p
tions made about future demand an
d
r
etail market conditions. If the Company determines that the estimated market value of its inventory is less tha
n
the carrying value of such inventory, it records a charge to cost of goods sold to reflect the lower of cost o
r
market. If actual market conditions are less favorable than those projected by the Company, further adjustments
may be required that would increase the cost of goods sold in the period in which such a determination wa
s
made
.
Income Taxe
s
I
ncome taxes are accounted for under the asset and liability method. Deferred income tax assets an
d
liabilities are established for temporary differences between the financial reporting basis and the tax basis of the
Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized o
r
settled. Deferred income tax assets are reduced by valuation allowances when necessary.
A
ssessing whether deferred tax assets are realizable requires significant judgment. The Company consider
s
all available positive and negative evidence, including historical operating performance and expectations of
f
uture operating performance. The ultimate realization of deferred tax assets is often dependent upon futur
e
taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that
all or some portion of the asset will not be realized, valuation allowances are established against the Company’
s
deferred tax assets, which increase income tax ex
p
ense in the
p
eriod when such a determination is made
.
I
ncome taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than
not to be sustained u
p
on audit based on the technical merits of the tax
p
osition. Settlements with tax authorities,
the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax
p
ositions may cause a change to the effective tax rate. The Company recognizes accrued interest and penalties
r
elated to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.
Property and Equipment
Property and equipment are stated at cost, including the cost of internal labor for software customized for
internal use, less accumulated depreciation and amortization. Property and equipment is depreciated using the
straight-line method over the estimated useful lives of the assets: 3 to 10 years for furniture, office equipment,
software and plant equipment and 10 to 3
5
years for site improvements, buildings and building equipment.
Leasehold and tenant im
p
rovements are amortized over the shorter of the lease term or the estimated useful lives
o
f the assets. The cost of in-store apparel and footwear fixtures and displays are capitalized, included in furniture
,
f
ixtures and displays, and depreciated over 3 years. The Company periodically reviews assets’ estimated usefu
l
lives based upon actual experience and expected future utilization. A change in useful life is treated as a chang
e
in accounting estimate and is applied prospectively
.
The Company capitalizes the cost of interest for long term property and equipment projects based on the
Company’s weighted average borrowing rates in place while the projects are in progress. Capitalized interest was
$
0.4 million and
$
0.4 million as of December 31, 2014 and 2013, respectively
.
Upon retirement or disposition of property and equipment, the cost and accumulated depreciation ar
e
r
emoved from the accounts and any resulting gain or loss is reflected in selling, general and administrative
expenses for that period. Major additions and betterments are capitalized to the asset accounts while maintenance
and re
p
airs, which do not im
p
rove or extend the lives of assets, are ex
p
ensed as incurred.
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