Callaway 2010 Annual Report Download - page 102

from foreign exchange rate movements. The Company does not enter into foreign currency exchange contracts
for speculative purposes. Foreign currency exchange contracts usually mature within twelve months from their
inception.
During the years ended December 31, 2010, 2009 and 2008, the Company did not designate any foreign
currency exchange contracts as derivatives that qualify for hedge accounting under ASC 815. At December 31,
2010, 2009 and 2008, the notional amounts of the Company’s foreign currency exchange contracts used to hedge
the exposures discussed above were approximately $314,190,000, $101,723,000 and $23,742,000, respectively.
During the fourth quarter of 2009, the Company began hedging the translation of certain revenues and expenses
denominated in foreign currencies. As a result, the notional amounts of the Company’s foreign currency
exchange contracts as of December 31, 2010 and 2009 include $217,770,000 and $80,167,000, respectively,
relating to exposures in operating results from revenues and expenses of the Company’s international
subsidiaries. The Company estimates the fair values of foreign currency exchange contracts based on pricing
models using current market rates, and records all derivatives on the balance sheet at fair value with changes in
fair value recorded in the statement of operations.
The following table summarizes the fair value of derivative instruments by contract type as well as the
location of the asset and/or liability on the consolidated balance sheets at December 31, 2010 and 2009 (in
thousands):
Asset Derivatives
December 31, 2010 December 31, 2009
Derivatives not designated as hedging
instruments Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Foreign currency exchange contracts . . . Other current assets $ 1,786 Other current assets $2,705
Liability Derivatives
December 31, 2010 December 31, 2009
Derivatives not designated as hedging
instruments Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Foreign currency exchange contracts . . . Accounts payable and
accrued expenses $11,775
Accounts payable and
accrued expenses $ 47
The following table summarizes the location of gains and losses on the consolidated statements of
operations that were recognized during the years ended December 31, 2010, 2009 and 2008, respectively, in
addition to the derivative contract type (in thousands):
Amount of Gain / (Loss)
Recognized in Income on
Derivative Instruments
Year Ended December 31,
Derivatives not designated as hedging
instruments
Location of gain (loss) recognized in income on
derivative instruments 2010 2009 2008
Foreign currency exchange
contracts ...................... Other income (expense) $(18,600) $(7,594) $(3,251)
The net realized and unrealized contractual net losses noted in the table above for the years ended
December 31, 2010, 2009 and 2008 were used by the Company to offset actual foreign currency transactional net
gains associated with assets and liabilities denominated in foreign currencies as well as net gains associated with
the translation of foreign currencies in operating results.
Supply of Electricity and Energy Contracts
The Company previously had an energy supply contract, which the Company accounted for as a derivative
instrument. The Company terminated this contract in 2001, and upon termination, the contract ceased to be a
derivative instrument. At the time of termination, the Company did not meet the criteria to extinguish the
$19,922,000 unrealized loss liability associated with the derivative instrument. The Company continued to reflect
the derivative liability on its balance sheet as a derivative valuation account, subject to quarterly review in
accordance with applicable law and accounting regulations, including Topic 405-20 “Extinguishment of
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