Callaway 2009 Annual Report Download - page 114

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Employment Contracts
The Company has entered into employment contracts with each of the Company’s officers. These contracts
generally provide for severance benefits, including salary continuation, if employment is terminated by the
Company for convenience or by the officer for substantial cause. In addition, in order to assure that the officers
would continue to provide independent leadership consistent with the Company’s best interests in the event of an
actual or threatened change in control of the Company, the contracts also generally provide for certain
protections in the event of such a change in control. These protections include the payment of certain severance
benefits, including salary continuation, upon the termination of employment following a change in control.
Note 17. Fair Value of Financial Instruments
The Company’s foreign currency exchange contracts are measured and reported on a fair value basis in
accordance with ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines
fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosure about fair value measurements. ASC 820 enables the reader of the financial
statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the
quality and reliability of the information used to determine fair values. ASC 820 requires that assets and
liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market based inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
The following table summarizes the valuation of the Company’s foreign currency exchange contracts by the
above pricing levels as of the valuation dates listed (in thousands):
December 31, 2009 December 31, 2008
Carrying
Value
Observable
market based
inputs
(Level 2)
Carrying
Value
Observable
market based
inputs
(Level 2)
Foreign currency derivative instruments—asset position ...... $2,705 $2,705 $ — $ —
Foreign currency derivative instruments—liability position . . . 47 47 2,007 2,007
The fair value of the Company’s foreign currency exchange contracts is determined based on observable
inputs that are corroborated by market data. Foreign currency derivatives on the balance sheet are recorded at fair
value with changes in fair value recorded in the statement of operations.
Note 18. Segment Information
The Company’s operating segments are organized on the basis of products and include golf clubs and golf
balls. The golf clubs segment consists primarily of Callaway Golf, Top-Flite and Ben Hogan woods, hybrids,
irons, wedges and putters as well as Odyssey putters, pre-owned clubs, GPS on-course range finders, other golf-
related accessories and royalties from licensing of the Company’s trademarks and service marks. The golf balls
segment consists primarily of Callaway Golf and Top-Flite golf balls that are designed, manufactured and sold
by the Company. There are no significant intersegment transactions.
F-38