Callaway 2012 Annual Report Download - page 85

assured. Sales returns are estimated based upon historical returns, current economic trends, changes in customer
demands and sell-through of products. The Company also records estimated reductions to revenue for sales
programs such as incentive offerings. Sales 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. The following table provides a reconciliation of the activity related to the Company’s allowance for
sales returns:
Year Ended December 31,
2012 2011 2010
(In thousands)
Beginning balance ................................................ $ 6,521 $ 4,955 $ 5,725
Provision ........................................................ 32,425 36,239 29,026
Sales returns ..................................................... (32,563) (34,673) (29,796)
Ending balance ................................................... $ 6,383 $ 6,521 $ 4,955
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 deferred revenue associated with outstanding gift cards
decreased from $1,988,000 at December 31, 2011 to $1,141,000 at December 31, 2012.
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. Revenues from course credits in connection with the use of uPro GPS devices are
deferred when purchased and recognized on a straight-line basis over a three year period. Deferred revenue
associated with unused course credits was $2,544,000 and $2,945,000 at December 31, 2012 and 2011,
respectively.
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 in net sales 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 $7,073,000, $6,219,000 and $5,831,000 during 2012, 2011 and 2010, 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,
2012 2011 2010
(In thousands)
Beginning balance ................................................... $8,140 $ 8,427 $ 9,449
Provision ........................................................... 7,507 8,614 8,439
Claims paid/costs incurred ............................................. (8,108) (8,901) (9,461)
Ending balance ...................................................... $7,539 $ 8,140 $ 8,427
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