Callaway 2004 Annual Report Download - page 78

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CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
reclassiÑed to earnings as a result of the discontinuance of cash Öow hedges. The components of accumulated
other comprehensive income (loss) are as follows:
Year Ended December 31,
2004 2003 2002
(In thousands)
Unrealized gain (loss) on cash Öow hedgesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,270 $(1,669) $ (918)
Equity adjustment from foreign currency translation ÏÏÏÏÏÏÏÏÏÏÏ 8,811 4,559 (2,837)
Unrealized loss on marketable securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì (92)
$11,081 $ 2,890 $(3,847)
Segment Information
The Company's operating segments are organized on the basis of products and consist of Golf Clubs and
Golf Balls. The Golf Clubs segment consists primarily of Callaway Golf, Top-Flite and Ben Hogan woods,
irons, wedges and putters as well as Odyssey putters, other golf-related accessories and royalty and other
income. The Golf Balls segment consists primarily of Callaway Golf, Top-Flite and Ben Hogan golf balls that
are designed, manufactured and sold by the Company. The Company also discloses information about
geographic areas. This information is presented in Note 14.
DiversiÑcation of Credit Risk
The Company's Ñnancial instruments that are subject to concentrations of credit risk consist primarily of
cash equivalents, trade receivables and foreign currency contracts.
The Company historically invests its excess cash in money market accounts and U.S. Government
securities and has established guidelines relative to diversiÑcation and maturities in an eÅort to maintain safety
and liquidity. These guidelines are periodically reviewed and modiÑed to take advantage of trends in yields and
interest rates.
The Company operates in the golf equipment industry and primarily sells its products to golf equipment
retailers, sporting goods retailers and mass merchants, directly and through wholly-owned domestic and
foreign subsidiaries, and to foreign distributors. The Company performs ongoing credit evaluations of its
customers' Ñnancial condition and generally requires no collateral from these customers. The Company
maintains reserves for estimated credit losses, which it considers adequate to cover any such losses. Managing
customer-related credit risk is more diÇcult in regions outside of the United States. During 2004, 2003 and
2002, approximately 42%, 45% and 45%, respectively, of the Company's net sales were made in regions outside
of the United States. An adverse change in either economic conditions abroad or in the Company's
relationship with signiÑcant foreign retailers could signiÑcantly increase the Company's credit risk related to
its international operations.
The Company enters into forward exchange rate contracts and put or call options for the purpose of
hedging foreign exchange rate exposures on existing or anticipated transactions. In the event of a failure to
honor one of these contracts by one of the banks with which the Company has contracted, management
believes any loss would be limited to the exchange rate diÅerential from the time the contract was made until
the time it was compensated.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004) (""SFAS 123R''), Share-Based
Payment. This Statement replaces SFAS No. 123, Accounting for Stock-Based Compensation and supersedes
ABP Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R addresses the accounting
F-13