Under Armour 2013 Annual Report Download - page 51

(2) Includes the minimum payments for operating lease obligations. The operating lease obligations do not
include any contingent rent expense we may incur at our brand and factory house stores based on future
sales above a specified minimum or payments made for maintenance, insurance and real estate taxes.
Contingent rent expense was $7.8 million for the year ended December 31, 2013.
(3) We generally place orders with our manufacturers at least three to four months in advance of expected
future sales. The amounts listed for product purchase obligations primarily represent our open production
purchase orders with our manufacturers for our apparel, footwear and accessories, including expected
inbound freight, duties and other costs. These open purchase orders specify fixed or minimum quantities of
products at determinable prices. The product purchase obligations also includes fabric commitments with
our suppliers, which secure a portion of our material needs for future seasons. The reported amounts exclude
product purchase liabilities included in accounts payable as of December 31, 2013.
(4) Includes sponsorships with professional teams, professional leagues, colleges and universities, individual
athletes, athletic events and other marketing commitments in order to promote our brand. Some of these
sponsorship agreements provide for additional performance incentives and product supply obligations. It is
not possible to determine how much we will spend on product supply obligations on an annual basis as
contracts generally do not stipulate specific cash amounts to be spent on products. The amount of product
provided to these sponsorships depends on many factors including general playing conditions, the number of
sporting events in which they participate and our decisions regarding product and marketing initiatives. In
addition, it is not possible to determine the performance incentive amounts we may be required to pay under
these agreements as they are primarily subject to certain performance based and other variables. The
amounts listed above are the fixed minimum amounts required to be paid under these agreements.
The table above excludes a liability of $24.1 million for uncertain tax positions, including the related
interest and penalties, recorded in accordance with applicable accounting guidance, as we are unable to
reasonably estimate the timing of settlement. Refer to Note 10 to the Consolidated Financial Statements for a
further discussion of our uncertain tax positions.
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 and other 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 brand and factory
house stores. We may also ship product directly from our supplier to the customer and recognize revenue when
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