Under Armour 2010 Annual Report Download - page 47

In addition, the table above excludes the expected purchase of part of our corporate office complex of $60.5
million. The purchase is subject to certain closing conditions. We expect the transaction to close in early 2011.
We expect this transaction to have minimal impact on cash flows both from a purchase perspective and on a
go-forward operational basis, as we intend to fund this purchase through additional debt.
Off-Balance Sheet Arrangements
In connection with various contracts and agreements, we have agreed to indemnify counterparties against
certain third party claims relating to the infringement of intellectual property rights and other items. Generally,
such indemnification obligations do not apply in situations in which our counterparties are grossly negligent,
engage in willful misconduct, or act in bad faith. Based on our historical experience and the estimated probability
of future loss, we have determined the fair value of such indemnifications is not material to our financial position
or results of operations.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. To prepare these financial statements, we must make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as
the disclosures of contingent assets and liabilities. Actual results could be significantly different from these
estimates. We believe the following discussion addresses the critical accounting policies that are necessary to
understand and evaluate our reported financial results.
Revenue Recognition
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 are 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 take place at the point of sale, for example at our factory house and
specialty 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. License revenues are recognized based upon
shipment of licensed products sold by our licensees.
Sales Returns, Allowances, Markdowns and Discounts
We record reductions to revenue for estimated customer returns, allowances, markdowns and discounts. We
base our 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 us. The actual amount of
customer returns and allowances, which is inherently uncertain, may differ from our estimates. If we determine
that actual or expected returns or allowances are significantly higher or lower than the reserves we established,
we would record a reduction or increase, as appropriate, to net sales in the period in which we make such a
determination. Provisions for customer specific discounts are based on contractual obligations with certain major
customers.
Reserves for returns, allowances, markdowns and discounts are recorded as an offset to accounts receivable
as settlements are made through offsets to outstanding customer invoices. Prior to 2010, the majority of reserves
for customer markdowns and discounts were recorded as accrued expenses as settlements were made through
cash disbursements. As of December 31, 2010, there were $8.3 million in customer markdowns and discounts
recorded as offsets to accounts receivable, and no amounts were recorded as accrued expenses. As of
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