Under Armour 2015 Annual Report Download - page 51

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.
Our significant accounting policies are described in Note 2 of the audited consolidated financial statements.
The SEC suggests companies provide additional disclosure on those accounting policies considered most critical.
The SEC considers an accounting policy to be critical if it is important to our financial condition and results of
operations and requires significant judgments and estimates on the part of management in its application. Our
estimates are often based on complex judgments, probabilities and assumptions that management believes to be
reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals,
applying reasonable judgment to the same facts and circumstances, could develop and support a range of
alternative estimated amounts. For a complete discussion of our critical accounting policies, see the “Critical
Accounting Policies” section of the Management’s Discussion and Analysis. There were no significant changes
to our critical accounting policies during the year ended December 31, 2015.
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
the product is delivered to and accepted by the customer. License revenues are primarily recognized based upon
shipment of licensed products sold by our licensees. Sales taxes imposed on our 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.
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. As of December 31, 2015
and 2014, there were $94.5 million and $68.9 million, respectively, in reserves for customer returns, allowances,
markdowns and discounts.
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