Callaway 2003 Annual Report Download - page 47

44 CALLAWAY GOLF COMPANY
Note 1. The Company
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 Big Bertha Hawk Eye VFT Titanium
Metal Woods, ERC Fusion and ERC Fusion+ Drivers, 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-16,
Steelhead X-14 and Big Bertha Irons, Odyssey putters and
wedges, Callaway Golf wedges, Top-Flite woods, Top-Flite irons
and wedges, Ben Hogan irons and 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, HX Tour, Big
Bertha, Warbird, Ben Hogan, Top-Flite and Strata golf balls.
Note 2. Significant Accounting 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, Callaway Golf
Europe Ltd., 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., Callaway Golf Company
Grantor Stock Trust and The Top-Flite Golf Company. All inter-
company 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 busi ness
combinations. Accordingly, pro forma financial information is
not presented.
In September 2003, the Company acquired through a court-
approved sale substantially all of the golf-related assets of the
TFGC Estate Inc. (f/k/a The Top-Flite Golf Company, f/k/a
Spalding Sports Worldwide, Inc.), which included golf ball
manufacturing facilities, the Top-Flite, Strata and Ben Hogan
brands, and all golf-related U.S. and foreign golf-related patents
and trademarks (the “Top-Flite Acquisition”). This acquisition
was accounted for using the purchase method and was considered
a significant business combination. Accordingly, pro forma
financial information is presented in Note 3.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(GAAP) requires management to make estimates and judg-
ments 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 recoverability 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
appropriately 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 legal and practical risk of
loss transfer to the customer. In December 2003, the Securities
and Exchange Commission released Staff Accounting Bulletin
(“SAB”) 104, “Revenue Recognition.” The adoption of SAB
104 did not have a material impact on the Company’s revenue
recognition policies, nor our financial position or results of
operations (see Recent Accounting Pronouncements below).
CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS