Callaway 2011 Annual Report Download - page 44

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vesting period based on an estimated fair value, which is remeasured each reporting period. Once vested, the
SARs continued to be remeasured to fair value until they are exercised.
The Company records compensation expense for restricted stock awards and restricted stock units
(collectively “restricted stock”) based on the estimated fair value of the award on the date of grant. The estimated
fair value is determined based on the closing price of the Company’s common stock on the date of grant
multiplied by the number of shares awarded. Compensation expense is recognized on a straight-line basis over
the vesting period, reduced by an estimated forfeiture rate.
Phantom stock units (“PSUs”) are a form of share-based awards that are indexed to the Company’s stock
and are settled in cash. As such, these awards are classified as liabilities. Because phantom stock units are settled
in cash, compensation expense recognized over the vesting period will vary based on changes in fair value. Fair
value is remeasured at the end of each interim reporting period through the settlement date of the awards and is
based on the closing price of the Company’s stock.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 2 “Significant Accounting
Policies” to the Notes to Consolidated Financial Statements, which is incorporated herein by this reference.
Results of Operations
Overview of Business and Seasonality
The Company designs, manufactures and sells high quality golf clubs and golf balls and also sells golf
apparel, golf footwear, golf bags, gloves, eyewear and other golf-related accessories, including uPro GPS
on-course measurement devices. The Company designs its products to be technologically advanced and in this
regard invests a considerable amount in research and development each year. The Company’s golf products are
designed for golfers of all skill levels, both amateur and professional.
The Company has two operating segments that are organized on the basis of products, namely the golf clubs
segment and golf balls segment. The golf clubs segment consists primarily of Callaway Golf and Top-Flite
woods, hybrids, irons, wedges and putters as well as Odyssey putters. This segment also includes other golf-
related accessories described above and royalties from licensing of the Company’s trademarks and service marks
as well as sales of pre-owned golf clubs. The golf balls segment consists primarily of Callaway Golf and
Top-Flite golf balls. As discussed in Note 19 “Segment Information” to the Notes to Consolidated Financial
Statements, the Company’s operating segments exclude a significant amount of corporate general administrative
expenses and other income (expense) not utilized by management in determining segment profitability.
In most of the regions where the Company does business, the game of golf is played primarily on a seasonal
basis. Weather conditions generally restrict golf from being played year-round, except in a few markets, with
many of the Company’s on-course customers closing for the cold weather months. The Company’s business is
therefore also subject to seasonal fluctuations. In general, during the first quarter, the Company begins selling its
products into the golf retail channel for the new golf season. This initial sell-in generally continues into the
second quarter. The Company’s second quarter sales are significantly affected by the amount of reorder business
of the products sold during the first quarter. The Company’s third quarter sales are generally dependent on
reorder business but are generally less than the second quarter as many retailers begin decreasing their inventory
levels in anticipation of the end of the golf season. The Company’s fourth quarter sales are generally less than the
other quarters due to the end of the golf season in many of the Company’s key markets. However, fourth quarter
sales can be affected from time to time by the early launch of product introductions related to the new golf season
of the subsequent year. This seasonality, and therefore quarter to quarter fluctuations, can be affected by many
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