Under Armour 2007 Annual Report Download - page 62

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Revenue Recognition
The Company recognizes revenue pursuant to applicable accounting standards, including the SEC Staff
Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, which summarizes certain of the SEC staff’s views
in applying generally accepted accounting principles to revenue recognition in financial statements and provides
guidance on revenue recognition issues in the absence of authoritative literature addressing a specific
arrangement or a specific industry.
Net revenues consist of both net sales and license revenues. Net sales are recognized upon transfer of
ownership, including passage of title to the customer and transfer of risk of loss related to those goods. Transfer
of title and risk of loss is based upon shipment under free on board shipping point for most goods or upon receipt
by the customer depending on the country of the sale and the agreement with the customer. In some instances,
transfer of title and risk of loss takes place at the point of sale (e.g. at the Company’s retail stores). The Company
may also ship product directly from its 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. Provisions for customer
specific discounts based on contractual obligations with certain major customers are recorded as reductions to net
sales. Returns and sales allowances are estimated at the time of sale based primarily on historical experience.
License revenues are recognized based upon shipment of licensed products sold by our licensees. Sales taxes
imposed on our revenues from product sales are presented on a net basis on the consolidated statements of
income and therefore do not impact net revenues or cost of goods sold.
Advertising Costs
Advertising costs are charged to selling, general and administrative expenses. Advertising production costs
are expensed the first time an advertisement related to such production costs is run. Media (television, print and
radio) placement costs are expensed the month the advertisement appears. In addition, advertising costs include
sponsorship expenses. Accounting for sponsorship payments is based upon specific contract provisions.
Generally, sponsorship payments are expensed uniformly over the term of the contract after giving recognition to
periodic performance compliance provisions of the contracts. Prepayments made under contracts are included in
prepaid expenses and other current assets. Advertising expense, including amortization of in-store marketing
fixtures and displays, was $71.2 million, $48.3 million and $30.5 million for the years ended December 31, 2007,
2006 and 2005, respectively. At December 31, 2007 and 2006, prepaid advertising costs were $0.8 million and
$0.1 million, respectively.
Shipping and Handling Costs
The Company charges certain customers shipping and handling fees. These revenues are recorded in net
revenues. The Company includes the majority of outbound shipping and handling costs as a component of
selling, general and administrative expenses. Outbound shipping and handling costs include costs associated with
shipping goods to customers and certain costs to operate the Company’s distribution facilities. These costs
included within selling, general and administrative expenses were $13.7 million, $10.5 million and $7.8 million
for the years ended December 31, 2007, 2006 and 2005, respectively.
Earnings per Share
Basic earnings per common share is computed by dividing net income available to common stockholders for
the period by the weighted average number of common shares outstanding during the period. Diluted earnings
per common share is computed by dividing net income available to common stockholders for the period by the
diluted weighted average common shares outstanding during the period. Diluted earnings per share reflects the
potential dilution from common shares issuable through stock options, warrants, restricted stock and other equity
awards. In accordance with Emerging Issues Task Force (“EITF”) Issue No. 03-6: Participating Securities and
the Two Class Method Under FASB Statement No. 128, the Convertible Common Stock outstanding prior to our
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