Under Armour 2011 Annual Report Download - page 62

the Company determines a smaller or larger reserve is appropriate, it would record a benefit or charge to selling,
general and administrative expense in the period in which such a determination was made. As of December 31,
2011 and 2010, the allowance for doubtful accounts was $4.1 million and $4.9 million, respectively.
Inventories
Inventories consist of finished goods, raw materials and work-in-process. Costs of finished goods
inventories include all costs incurred to bring inventory to its current condition, including inbound freight, duties
and other costs. The Company values its inventory at standard cost which approximates 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 the Company determines that the estimated market value of its
inventory is less than the carrying value of such inventory, it records a charge to cost of goods sold to reflect the
lower of cost or market. If actual market conditions are less favorable than those projected by the Company,
further adjustments may be required that would increase the cost of goods sold in the period in which such a
determination was made.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and
liabilities are established for temporary differences between the financial reporting basis and the tax basis of the
Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or
settled. Deferred income tax assets are reduced by valuation allowances when necessary.
Assessing whether deferred tax assets are realizable requires significant judgment. The Company considers
all available positive and negative evidence, including historical operating performance and expectations of
future operating performance. The ultimate realization of deferred tax assets is often dependent upon future
taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that
all or some portion of the asset will not be realized, valuation allowances are established against the Company’s
deferred tax assets, which increase income tax expense in the period when such a determination is made.
Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than
not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities,
the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax
positions may cause a change to the effective tax rate. The Company recognizes accrued interest and penalties
related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.
Property and Equipment
Property and equipment are stated at cost, including the cost of internal labor for software customized for
internal use, less accumulated depreciation and amortization. Property and equipment is depreciated using the
straight-line method over the estimated useful lives of the assets: 3 to 5 years for furniture, office equipment,
software and plant equipment and 10 to 35 years for site improvements, buildings and building equipment.
Leasehold and tenant improvements are amortized over the shorter of the lease term or the estimated useful lives
of the assets. The cost of in-store apparel and footwear fixtures and displays are capitalized, included in furniture,
fixtures and displays, and depreciated over 3 years.
The Company capitalizes the cost of interest for long term property and equipment projects based on the
Company’s weighted average borrowing rates in place while the projects are in progress. Capitalized interest was
$0.7 million as of December 31, 2011 and 2010.
Upon retirement or disposition of property and equipment, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in selling, general and administrative
expenses for that period. Major additions and betterments are capitalized to the asset accounts while maintenance
and repairs, which do not improve or extend the lives of assets, are expensed as incurred.
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