Callaway 2009 Annual Report Download - page 85

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program accruals are estimated based upon the attributes of the sales program, management’s forecast of future
product demand, and historical customer participation in similar programs.
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.
Revenues from course credits in connection with the use of uPro GPS on-course range finders are deferred
when purchased and recognized when customers download the course credits for usage.
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. The Company recognized royalty income under its various licensing
agreements of $5,634,000, $8,847,000 and $8,672,000 during 2009, 2008 and 2007, respectively.
Warranty Policy
The Company has a stated two-year warranty policy for its golf clubs. The Company’s policy is to accrue
the estimated cost of satisfying future warranty claims at the time the sale is recorded. In estimating its future
warranty obligations, the Company considers various relevant factors, including the Company’s stated warranty
policies and practices, the historical frequency of claims, and the cost to replace or repair its products under
warranty. The decrease in the estimated future warranty obligation is primarily due to a decline in sales and in
warranty return rates primarily due to improved durability of newer products combined with an increase in
customer paid repairs. The following table provides a reconciliation of the activity related to the Company’s
reserve for warranty expense:
Year Ended December 31,
2009 2008 2007
(In thousands)
Beginning balance ................................................ $11,614 $ 12,386 $ 13,364
Provision ........................................................ 8,544 9,698 10,504
Claims paid/costs incurred .......................................... (10,709) (10,470) (11,482)
Ending balance ................................................... $ 9,449 $ 11,614 $ 12,386
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, trade receivables and payables,
forward foreign currency exchange and option contracts (see Note 10) and its financing arrangements (see
Note 9). The carrying amounts of these instruments approximate fair value because of their short-term maturities
and variable interest rates. In addition, the Company has elected to purchase Company-owned life insurance in
order to support a deferred compensation plan that is offered to certain employees (see Note 14). The cash
surrender value of the Company-owned insurance policy approximates fair value because it represents the
amount the Company would receive from the insurance company upon the surrender of the policies.
F-9