Under Armour 2005 Annual Report Download - page 41

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New Accounting Pronouncements
In October 2005, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. Statement
of Financial Accounting Standard (“SFAS”) 13-1, Accounting for Rental Costs Incurred During a Construction
Period (“FSP SFAS 13-1”). FSP SFAS 13-1 concludes that there is no distinction between the right to use a
leased asset during and after the construction period; therefore rental costs incurred during the construction
period should be recognized as rental expense and included in income from continuing operations. FSP SFAS
13-1 is effective for the first reporting period beginning after December 15, 2005; early adoption is permitted.
We plan to adopt FSP SFAS 13-1 in the first quarter of 2006 and does not expect FSP SFAS 13-1 to have a
material impact on our consolidated financial statements.
In June 2005, the EITF reached a consensus on Issue No. 05-6, Determining the Amortization Period for
Leasehold Improvements (“EITF 05-6”). EITF 05-6 addresses the amortization period for leasehold
improvements in operating leases that are either (a) placed in service significantly after and not contemplated at
or near the beginning of the initial lease term or (b) acquired in a business combination. Leasehold improvements
that are placed in service significantly after and not contemplated at or near the beginning of the lease term
should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods
and renewals that are deemed to be reasonably assured at the date the leasehold improvements are
purchased. Leasehold improvements acquired in a business combination should be amortized over the shorter of
the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be
reasonably assured at the date of acquisition. This Issue was applied to leasehold improvements that were
purchased or acquired in reporting periods after June 29, 2005. The application of EITF 05-6 did not have a
material impact on our consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, (“SFAS 154”)
which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS 154 applies to all voluntary changes in accounting principle and requires
retrospective application (a term defined by the statement) to prior periods’ financial statements, unless it is
impracticable to determine the effect of a change. It also applies to changes required by an accounting
pronouncement that does not include specific transition provisions. SFAS 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15, 2005. We plan to adopt SFAS 154 in
the first quarter of fiscal 2006.
In December 2004, the FASB issued SFAS 123-revised 2004, Share-Based Payment (“SFAS 123R”), which
replaces SFAS 123, and supersedes APB 25. SFAS 123R requires all stock-based compensation to be recognized
as an expense in the financial statements and that such cost be measured according to the fair value of the award.
SFAS 123R will be effective for our first quarter of 2006. We currently account for grants of stock rights in
accordance with APB 25 and provide pro forma effects of SFAS 123 in accordance with SFAS 148. In
March 2005, Staff Accounting Bulletin No. 107, Share Based Payment, (“SAB 107”) was issued to provide
guidance from the Securities and Exchange Commission to simplify some of the implementation challenges of
SFAS 123R as this statement relates to the valuation of the share based payment arrangements for public
companies. We will apply the principles of SAB 107 in connection with the adoption of SFAS 123R. We are
currently evaluating the effect of SFAS 123R and SAB 107 on our consolidated financial statements with the
intent of implementing this standard in the first quarter of 2006.
In November 2004, FASB issued SFAS No. 151, Inventory Costs (“SFAS 151”) which is an amendment of
Accounting Research Bulletin (“ARB”) No. 43(“ARB 43”), Inventory Pricing. SFAS 151 amends ARB 43 to
clarify abnormal amounts of idle facility expenses, freight, handling costs and wasted materials should be
recognized as current-period charges. This statement also requires that the allocation of fixed production
overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is
effective for fiscal years beginning after June 15, 2005. We do not believe the adoption of this statement in the
first quarter of 2006 will have a material effect on our consolidated financial statements.
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