Under Armour 2015 Annual Report Download - page 68

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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 brand and factory house 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 and other revenues are primarily 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, 2015 and 2014, there were $94.5 million and $68.9
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 $417.8 million, $333.0 million and $246.5 million for the years ended
December 31, 2015, 2014 and 2013, respectively. At December 31, 2015 and 2014, prepaid advertising costs
were $37.5 million and $31.1 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,
general and administrative expenses, were $63.7 million, $55.3 million and $46.1 million for the years ended
December 31, 2015, 2014 and 2013, respectively. The Company includes outbound freight costs associated with
shipping goods to customers as a component of cost of goods sold.
Minority Investment
The Company holds a minority investment in Dome Corporation (“Dome”), the Company’s Japanese
licensee. The Company invested ¥1,140.0 million, or $15.5 million, in exchange for 19.5% common stock
ownership in Dome. As of December 31, 2015 and 2014, the carrying value of the Company’s investment was
$12.0 million and $13.4 million, respectively, and was included in other long term assets on the consolidated
balance sheets. The investment is subject to foreign currency translation rate fluctuations as it is held by the
Company’s European subsidiary.
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