Under Armour 2012 Annual Report Download - page 64

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Currently, the Company’s foreign currency forward contracts are not designated as cash flow hedges, and
accordingly, changes in their fair value are included in other expense, net on the consolidated statements of
income. The Company has designated its interest rate swap contract as a cash flow hedge and accordingly, the
effective portion of changes in fair value are recorded in other comprehensive income and reclassified into
interest expense over the life of the underlying debt obligation. The Company does not enter into derivative
financial instruments for speculative or trading purposes.
Revenue Recognition
The Company recognizes revenue pursuant to applicable accounting standards. 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, for example, 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.
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 determines that actual or expected returns or allowances are
significantly higher or lower than the reserves it established, it would record a reduction or increase, as
appropriate, to net sales in the period in which it makes 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. As of December 31, 2012 and 2011, there were $40.7 million and $27.1
million, respectively, in reserves for customer returns, allowances, markdowns and discounts.
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, and costs related to
event sponsorships are expensed when the event occurs. 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 recording expense related to specific
performance incentives once they are deemed probable. Advertising expense, including amortization of in-store
marketing fixtures and displays, was $205.4 million, $167.9 million and $128.2 million for the years ended
December 31, 2012, 2011 and 2010, respectively. At December 31, 2012 and 2011, prepaid advertising costs
were $17.5 million and $10.4 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 handling costs as a component of selling, general and
administrative expenses. Outbound handling costs include costs associated with preparing goods to ship to
customers and certain costs to operate the Company’s distribution facilities. These costs, included within selling,
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