Callaway 2007 Annual Report Download - page 79

Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133,” SFAS No. 138,
“Accounting for Certain Derivative Instruments and Certain Hedging Activities” and SFAS No. 149,
“Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities.” The purpose of these
derivative instruments is to minimize the variability of cash flows associated with the anticipated transactions
being hedged. As changes in foreign currency rates impact the United States dollar value of anticipated
transactions, the fair value of the forward contracts also changes, offsetting foreign currency rate fluctuations.
Changes in the fair value of derivatives are recorded each period in income or other comprehensive income,
depending on whether the derivatives are designated as hedges and, if so, the types and effectiveness of hedges.
Additional information about the Company’s use of derivative instruments is presented in Note 8.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments purchased with original maturities of three months or less.
Allowance for Doubtful Accounts
The Company maintains an allowance for estimated losses resulting from the failure of its customers to
make required payments. An estimate of uncollectible amounts is made by management based upon historical
bad debts, current customer receivable balances, age of customer receivable balances, the customer’s financial
condition and current economic trends, all of which are subject to change. Actual uncollected amounts have been
consistent with the Company’s expectations.
Inventories
Inventories are valued at the lower of cost or fair market value. Cost is determined using the first-in,
first-out (FIFO) method. The inventory balance, which includes material, labor and manufacturing overhead
costs, is recorded net of an estimated allowance for obsolete or unmarketable inventory. The estimated allowance
for obsolete or unmarketable inventory is based upon current inventory levels, sales trends and historical
experience as well as management’s understanding of market conditions and forecasts of future product demand,
all of which are subject to change. Actual inventory charges have been consistent with the Company’s
expectations.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed
using the straight-line method over estimated useful lives as follows:
Buildings and improvements ........................................................ 10-30 years
Machinery and equipment .......................................................... 5-15 years
Furniture, computers and equipment .................................................. 3-5years
Production molds ................................................................. 2years
Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase
values, change capacities or extend useful lives are capitalized. The related costs and accumulated depreciation
of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.
Construction in-process consists primarily of machinery and equipment that have not yet been placed into
service, unfinished molds as well as in-process internally developed software.
In accordance with American Institute of Certified Public Accountants Statement of Position 98-1,
“Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” the Company
capitalizes certain costs incurred in connection with developing or obtaining internal use software. Costs incurred
in the preliminary project stage are expensed. All direct external costs incurred to develop internal-use software
during the development stage are capitalized and amortized using the straight-line method over the remaining
estimated useful lives. Costs such as maintenance and training are expensed as incurred.
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