Callaway 2008 Annual Report Download - page 42

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Preferred Retailer Program, the Company from time to time offers additional sales program incentive offerings
which are also generally short term in nature. Historically the Company’s actual costs related to its Preferred
Retailer Program and other sales programs have not been materially different than its estimates.
Revenues from gift cards are deferred and recognized when the cards are redeemed. In addition, the
Company recognizes revenue from unredeemed gift cards when the likelihood of redemption becomes remote
and under circumstances that comply with any applicable state escheatment laws. The Company’s gift cards have
no expiration. To determine when redemption is remote, the Company analyzes an aging of unredeemed cards
(based on the date the card was last used or the activation date if the card has never been used) and compares that
information with historical redemption trends. The Company does not believe there is a reasonable likelihood
that there will be a material change in the future estimates or assumptions used to determine the timing of
recognition of gift card revenues. However, if the Company is not able to accurately determine when gift card
redemption is remote, the Company may be exposed to losses or gains that could be material. The deferred
revenue associated with outstanding gift cards increased $0.4 million to $5.2 million during the year ended
December 31, 2008.
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. If the actual uncollected amounts
significantly exceed the estimated allowance, the Company’s operating results would be significantly adversely
affected. Assuming there had been a 10% increase in the Company’s 2008 allowance for doubtful accounts,
pre-tax income for the year ended December 31, 2008 would have been reduced by approximately $0.9 million.
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.
The calculation of the Company’s allowance for obsolete or unmarketable inventory requires management
to make assumptions and to apply judgment regarding inventory aging, forecasted consumer demand and pricing,
regulatory (USGA and R&A) rule changes, the promotional environment and technological obsolescence. The
Company does not believe there is a reasonable likelihood that there will be a material change in the future
estimates or assumptions used to calculate the allowance. However, if estimates regarding consumer demand are
inaccurate or changes in technology affect demand for certain products in an unforeseen manner, the Company
may need to increase its inventory allowance, which could significantly adversely affect the Company’s
operating results. For example, assuming there had been a 10% increase in the Company’s 2008 allowance for
obsolete or unmarketable inventory, pre-tax income for the year ended December 31, 2008 would have been
reduced by approximately $1.9 million. Historically, there have been no material inventory write-offs for which
an allowance had not previously been established.
Long-Lived Assets
In the normal course of business, the Company acquires tangible and intangible assets. The Company
periodically evaluates the recoverability of the carrying amount of its long-lived assets (including property, plant
and equipment, investments, goodwill and other intangible assets) whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. Impairment is assessed when the
discounted future cash flows estimated to be derived from an asset are less than its carrying amount. Determining
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