Callaway 2012 Annual Report Download - page 42

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program are known as of the end of the year and paid to customers shortly after year-end. In addition to the
Preferred Retailer Program, the Company from time to time offers additional sales program incentive offerings
which are also generally short term in nature. Historically the Company’s actual costs related to its Preferred
Retailer Program and other sales programs have not been materially different than its estimates.
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. The Company does not believe there is a reasonable likelihood
that there will be a material change in the future estimates or assumptions used to determine the timing of
recognition of gift card revenues. However, if the Company is not able to accurately determine when gift card
redemption is remote, the Company may be exposed to losses or gains that could be material. The deferred
revenue associated with outstanding gift cards decreased from $2.0 million at December 31, 2011 to $1.1 million
at December 31, 2012.
Revenues from course credits in connection with the use of the Company’s uPro GPS devices are deferred
when purchased and recognized on a straight-line basis over a three year period. Although the Company
announced in July 2012 the transition of its integrated device business to a third-party based model, the Company
will continue to maintain services related to course credits used in conjunction with the uPro GPS devices.
Deferred revenue associated with unused course credits decreased to $2.5 million at December 31, 2012 from
$2.9 million at December 31, 2011.
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 uncollectible 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. If the actual uncollected amounts
significantly exceed the estimated allowance, the Company’s operating results would be significantly adversely
affected. Assuming there had been a 10% increase over the 2012 recorded estimated allowance for doubtful
accounts, pre-tax loss for the year ended December 31, 2012 would have been increased by approximately $0.7
million.
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 understanding of market conditions and forecasts of future product demand, all of
which are subject to change.
The calculation of the Company’s allowance for obsolete or unmarketable inventory requires management
to make assumptions and to apply judgment regarding inventory aging, forecasted consumer demand and pricing,
regulatory (USGA and R&A) rule changes, the promotional environment and technological obsolescence. The
Company does not believe there is a reasonable likelihood that there will be a material change in the future
estimates or assumptions used to calculate the allowance. However, if estimates regarding consumer demand are
inaccurate or changes in technology affect demand for certain products in an unforeseen manner, the Company
may need to increase its inventory allowance, which could significantly adversely affect the Company’s
operating results. Assuming there had been a 10% increase over the 2012 recorded estimated allowance for
obsolete or unmarketable inventory, pre-tax loss for the year ended December 31, 2012 would have been
increased by approximately $2.4 million.
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