Under Armour 2007 Annual Report Download - page 49

transfer of title and risk of loss takes place at the point of sale (e.g. at our retail stores). We may also ship product
directly from our supplier to the customer and recognize revenue when the product is delivered to and accepted
by the customer.
Net sales are recorded net of reserves for returns and certain sales allowances. Such returns and allowances
are estimated at the time of sale based primarily on historical experience and recent trends. License revenues are
recognized based upon shipment of licensed products sold by our licensees.
Sales Returns, Allowances and Discounts
We record reductions to revenue for estimated customer returns, allowances and discounts. We base our
estimates on historical rates of customer returns and allowances as well as the specific identification of
outstanding returns and allowances that have not yet been received by us. We base our estimates for customer
returns and allowances primarily on anticipated sales volume throughout the year. The actual amount of customer
returns and allowances, which is inherently uncertain, may differ from our estimates. If we determined that actual
or expected returns or allowances were significantly greater or lower than the reserves we had established, we
would record a reduction or increase, as appropriate, to net sales in the period in which we made such a
determination. Provisions for customer specific discounts based on contractual obligations with certain major
customers are recorded as reductions to net sales.
Reserve for Uncollectible Accounts Receivable
We make ongoing estimates relating to the collectibility of our accounts receivable and maintain a reserve
for estimated losses resulting from the inability of our customers to make required payments. In determining the
amount of the reserve, we consider our historical level of credit losses and make judgments about the
creditworthiness of significant customers based on ongoing credit evaluations. Because we cannot predict future
changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ
from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to
make payments, a larger reserve might be required. In the event we determine that a smaller or larger reserve was
appropriate, we would record a benefit or charge to selling, general and administrative expense in the period in
which we made such a determination.
Inventory Valuation and Reserves
We value our inventory at standard costs which approximates our landed cost, using the first-in, first-out
method of cost determination. Market value is estimated based upon assumptions made about future demand and
retail market conditions. If we determine that the estimated market value of our inventory is less than the
carrying value of such inventory, we provide a reserve for such difference as a charge to cost of goods sold to
reflect the lower of cost or market. If actual market conditions are more or less favorable than those projected by
us, further adjustments may be required that would decrease or increase our cost of goods sold in the period in
which we made such a determination.
Long-Lived Assets
The acquisition of long-lived assets, including furniture, office equipment, plant equipment, leasehold
improvements, computer hardware and software and in-store fixtures and displays, is recorded at cost and this
cost is depreciated over the asset’s estimated useful life. 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 recoverable. These factors may include a significant
deterioration of operating results, changes in business plans or changes in anticipated cash flows. When factors
indicate that an asset should be evaluated for possible impairment, we review long-lived assets to assess
recoverability from future operations using undiscounted cash flows. Impairments are recognized in earnings to
the extent that the carrying value exceeds fair value.
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