Under Armour 2009 Annual Report Download - page 60

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.
License revenues are recognized based upon shipment of licensed products sold by the Company’s licensees.
Sales taxes imposed on the Company’s revenues from product sales are presented on a net basis on the
consolidated statements of income and therefore do not impact net revenues or costs of goods sold.
Sales Returns, Allowances, Markdowns and Discounts
The Company records reductions to revenue for estimated customer returns, allowances, markdowns and
discounts. The Company bases its estimates on historical rates of customer returns and allowances as well as the
specific identification of outstanding returns, markdowns and allowances that have not yet been received by the
Company. The actual amount of customer returns and allowances, which is inherently uncertain, may differ from
the Company’s estimates. If the Company determined that actual or expected returns or allowances were
significantly greater or lower than the reserves it had established, it would record a reduction or increase, as
appropriate, to net sales in the period in which such a determination was made. Provisions for customer specific
discounts based on contractual obligations with certain major customers are recorded as reductions to net sales.
Reserves for returns, allowances, certain markdowns and certain discounts are recorded as an offset to
accounts receivable as settlements are made through offsets to outstanding customer invoices. The majority of
discounts earned by customers in the period are recorded as liabilities within accrued expenses as they stipulate
settlements to be made through the Company’s cash disbursements. In addition, certain markdowns expected to
be paid to customers through cash disbursements are recorded as liabilities within accrued expenses.
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 in the month during which the advertisement appears. In addition,
advertising costs include sponsorship expenses. Accounting for sponsorship payments is based upon specific
contract provisions and the payments are generally expensed uniformly over the term of the contract after giving
recognition to periodic performance compliance provisions of the contracts. Advertising expense, including
amortization of in-store marketing fixtures and displays, was $106.1 million, $94.9 million and $71.2 million for
the years ended December 31, 2009, 2008 and 2007, respectively. At December 31, 2009 and 2008, prepaid
advertising costs were $1.4 million and $0.9 million, respectively.
Shipping and Handling Costs
The Company charges certain customers shipping and handling fees. These fees 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 $21.4 million, $17.2 million and $13.7 million
for the years ended December 31, 2009, 2008, and 2007, 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. Any stock-based
compensation awards that are determined to be participating securities are included in the calculation of basic
earnings per share using the two class method. Diluted earnings per common share is computed by dividing net
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