Callaway 2011 Annual Report Download - page 84

Derivatives and Hedging
The Company from time to time uses derivative financial instruments to manage its exposure to foreign
exchange rates. The derivative instruments are accounted for pursuant to ASC Topic 815, “Derivatives and
Hedging,” which requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet,
measure those instruments at fair value and recognize changes in the fair value of derivatives in earnings in the
period of change unless the derivative qualifies as an effective hedge that offsets certain exposures. As of
December 31, 2011, the Company had derivative financial instruments in the form of foreign currency forward
contracts and put and call option contracts that were not designated as hedging instruments in accordance with
ASC Topic 815.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments purchased with original maturities of three months or less.
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 uncollectable 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. Actual uncollected amounts have
historically been consistent with the Company’s expectations.
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 estimates of market conditions and forecasts of future product demand, all
of which are subject to change.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed
using the straight-line method over estimated useful lives as follows:
Buildings and improvements ........................................................ 10-30 years
Machinery and equipment .......................................................... 5-10 years
Furniture, computers and equipment .................................................. 3-5years
Production molds ................................................................. 2-5years
Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase
values, change capacities or extend useful lives are capitalized. The related costs and accumulated depreciation
of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income (loss).
Construction in-process consists primarily of costs associated with building improvements, machinery and
equipment that have not yet been placed into service, unfinished molds as well as in-process internally developed
software.
In accordance with ASC Topic 350-40, “Internal-Use Software,” the Company capitalizes certain costs
incurred in connection with developing or obtaining internal use software. Costs incurred in the preliminary
project stage are expensed. All direct external costs incurred to develop internal-use software during the
development stage are capitalized and amortized using the straight-line method over the remaining estimated
useful lives. Costs such as maintenance and training are expensed as incurred.
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