Under Armour 2013 Annual Report Download - page 39

third-party suppliers and manufacturers outside the U.S. to provide fabrics and to produce our products, and
disruptions to our supply chain could harm our business. For a more complete discussion of the risks facing our
business, refer to the “Risk Factors” section included in Item 1A.
General
Net revenues comprise both net sales and license and other revenues. Net sales comprise sales from our
primary product categories, which are apparel, footwear and accessories. Our license and other revenues
primarily consist of fees paid to us by our licensees in exchange for the use of our trademarks on core products of
socks, team uniforms, baby and kids’ apparel, eyewear, inflatable footballs and basketballs, as well as the
distribution of our products in Japan.
Cost of goods sold consists primarily of product costs, inbound freight and duty costs, outbound freight
costs, handling costs to make products floor-ready to customer specifications, royalty payments to endorsers
based on a predetermined percentage of sales of selected products and write downs for inventory obsolescence.
The fabrics in many of our products are made primarily of petroleum-based synthetic materials. Therefore our
product costs, as well as our inbound and outbound freight costs, could be affected by long term pricing trends of
oil. In general, as a percentage of net revenues, we expect cost of goods sold associated with our apparel and
accessories to be lower than that of our footwear. No cost of goods sold is associated with license revenues.
We include outbound freight costs associated with shipping goods to customers as cost of goods sold;
however, we include the majority of outbound handling costs as a component of selling, general and
administrative expenses. As a result, our gross profit may not be comparable to that of other companies that
include outbound handling costs in their cost of goods sold. Outbound handling costs include costs associated
with preparing goods to ship to customers and certain costs to operate our distribution facilities. These costs were
$46.1 million, $34.8 million and $26.1 million for the years ended December 31, 2013, 2012 and 2011,
respectively.
Our selling, general and administrative expenses consist of costs related to marketing, selling, product
innovation and supply chain and corporate services. Personnel costs are included in these categories based on the
employees’ function. Personnel costs include salaries, benefits, incentives and stock-based compensation related
to our employees. Our marketing costs are an important driver of our growth. Marketing costs consist primarily
of commercials, print ads, league, team, player and event sponsorships and depreciation expense specific to our
in-store fixture program for our concept shops. Selling costs consist primarily of costs relating to sales through
our wholesale channel, commissions paid to third parties and the majority of our direct to consumer sales channel
costs, including the cost of brand and factory house store leases. Product innovation and supply chain costs
include our apparel, footwear and accessories product innovation, sourcing and development costs, distribution
facility operating costs, and costs relating to our Hong Kong and Guangzhou, China offices which help support
product development, manufacturing, quality assurance and sourcing efforts. Corporate services primarily consist
of corporate facility operating costs and company-wide administrative expenses.
Other expense, net consists of unrealized and realized gains and losses on our foreign currency derivative
financial instruments and unrealized and realized gains and losses on adjustments that arise from fluctuations in
foreign currency exchange rates relating to transactions generated by our international subsidiaries.
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