Callaway 2013 Annual Report Download - page 39

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25
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 to $1.0 million at
December 31, 2013 from $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 their estimated useful life. 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 through December 31, 2014.
Deferred revenue associated with unused course credits decreased from $2.5 million at December 31, 2012 to $1.8 million
at December 31, 2013.
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 2013 recorded estimated allowance for doubtful accounts, pre-tax loss for the year ended December 31,
2013 would have been increased by approximately $1.2 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 2013 recorded estimated allowance for obsolete or unmarketable inventory, pre-tax loss for the year ended
December 31, 2013 would have been increased by approximately $1.9 million.
Long-Lived Assets, Goodwill and Non-Amortizing Intangible Assets
In the normal course of business, the Company acquires tangible and intangible assets. The Company periodically
evaluates the recoverability of the carrying amount of its long-lived assets, including property, plant and equipment and
amortizing intangible assets, and investments whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be fully recoverable or exceeds its fair value. The Company evaluates the recoverability of
its goodwill and non-amortizing intangible assets at least annually or whenever indicators that the carrying amounts of
these assets may not be fully recoverable are present. Determining whether an impairment has occurred typically requires
various estimates and assumptions, including determining the amount of undiscounted cash flows directly related to the