Callaway 2002 Annual Report Download - page 45

42 CALLAWAY GOLF COMPANY
Callaw ay Golf Co m pany Not es to
Cons o lid a ted Financ ia l Stat e m ent s
Note 1. The Co m p a ny
Callaway Golf Company (“Callaway Golf” or the “Company”)
was incorporated in California in 1982 and was reincorporated
in Delaware in 1999. The Company designs, manufactures and
sells high-quality, innovative golf clubs and golf balls and also
sells golf accessories. Callaway Golf’s primary products for the
periods presented include Great Big Bertha Hawk Eye and Big
Bertha Hawk Eye VFT Titanium Metal Woods, ERC Forged
Titanium Drivers and ERC II Forged Titanium Metal Woods,
Great Big Bertha II Titanium Metal Woods and Great Big Bertha
II+ Titanium Drivers, Big Bertha Steelhead Plus and Big Bertha
Steelhead III Metal Woods, Big Bertha C4 Drivers, Great Big
Bertha Hawk Eye and Great Big Bertha Hawk Eye VFT
Tungsten Injected Titanium Irons, Steelhead X-14 and Big
Bertha Irons, Odyssey putters and wedges, Callaway Golf
wedges, golf balls, golf bags and other golf accessories. The golf
ball product line includes the Rule 35, CB1, CTU 30, HX, HX 2-
Piece, and Warbird golf balls.
Note 2. Sig nific ant Acc o u nting Policies
Principles of Consolidation
The consolidated financial statements for the periods presented
include the accounts of the Company and its subsidiaries,
Callaway Golf Sales Company, Golf Funding Corporation (“Golf
Funding”), Callaway Golf Ball Company, Odyssey Golf, Inc.
(“Odyssey”), CGV, Inc., Callaway Golf Media Ventures
(“CGMV”), Callaway Golf Europe Ltd., Callaway Golf Europe,
S.A., Callaway Golf K.K. (formerly named ERC International
Company), Callaway Golf (Germany) GmbH, Callaway Golf
Canada Ltd., Callaway Golf Korea, Ltd., Callaway Golf South
Pacific PTY Ltd. and Callaway Golf Company Grantor Stock
Trust. All intercompany transactions and balances have been
eliminated. Callaway Golf Ball Company was merged with the
Company as of December 29, 2000.
Acquisitions
During the first quarter of 2001, the Company acquired
distribution rights and substantially all of the assets from its
distributors in Spain and Australia for $4,400,000 and
$1,400,000, respectively. These acquisitions were accounted for
using the purchase method. These acquisitions are not
considered significant business combinations. Accordingly, pro
forma financial information is not presented.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. The Company bases its estimates
on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances.
Examples of such estimates include provisions for warranty,
uncollectable accounts receivable, inventory obsolescence,
market value estimates of derivative instruments and recover-
ability of long-lived assets. Actual results may materially differ
from these estimates. On an on-going basis, the Company
reviews its estimates to ensure that the estimates appropri-
ately reflect changes in its business or as new information
becomes available.
Revenue Recognition
Sales are recognized net of an allowance for sales returns and
sales programs when both title and risk of loss transfer to the
customer. The Company adopted Staff Accounting Bulletin No.
101, “Revenue Recognition in Financial Statements” (“SAB No.
101”) in the fourth quarter of 2000 with an effective date of
January 1, 2000. As a result of the adoption of SAB No. 101, the
Company recognized a cumulative effect adjustment of $957,000
in the Consolidated Statement of Operations for the year ended
December 31, 2000 to reflect the change in the Company’s
revenue recognition policy from shipping point to the time both
legal and practical risk of loss transfers to the customer.
Amounts billed to customers for shipping and handling are
included in net sales and costs incurred related to shipping and
handling are included in cost of sales.
Royalty income is recorded as underlying product sales occur,
subject to certain minimums, in accordance with the related
licensing arrangements (Note 14).