Callaway 2013 Annual Report Download - page 84

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F-14
applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the
Company. The Company accrues an amount for its estimate of additional tax liability, including interest and penalties in
income tax expense, for any uncertain tax positions taken or expected to be taken in an income tax return. The Company
reviews and updates the accrual for uncertain tax positions as more definitive information becomes available. Historically,
additional taxes paid as a result of the resolution of the Company’s uncertain tax positions have not been materially
different from the Company’s expectations. The Company recognizes interest and/or penalties related to income tax
matters in income tax expense. For further information, see Note 12 “Income Taxes.”
Other Income (Expense), Net
Other income (expense), net primarily includes gains and losses on foreign currency exchange contracts and foreign
currency transactions. The components of other income (expense), net are as follows:
Years Ended December 31,
2013 2012 2011
(In thousands)
Foreign currency exchange contract gains/(losses), net ................................................ $ 6,764 $ 6,591 $ (8,861)
Foreign currency transaction gains/(losses), net ........................................................... (821)(3,343) 708
Other .............................................................................................................................. 62 (96)52
$ 6,005 $ 3,152 $ (8,101)
Accumulated Other Comprehensive Income
Accumulated other comprehensive income includes the impact of foreign currency translation adjustments. Since
the Company has met the indefinite reversal criteria, it does not accrue income taxes on foreign currency translation
adjustments. The total equity adjustment from foreign currency translation included in accumulated other comprehensive
income was a loss of $2,593,000 as of December 31, 2013 and income of $699,000 as of December 31, 2012.
Segment Information
The Company’s operating segments are organized on the basis of products and consist of golf clubs and golf balls.
The golf clubs segment consists primarily of Callaway Golf woods, hybrids, irons, wedges and putters as well as Odyssey
putters, pre-owned clubs, golf-related accessories and royalties from licensing of the Company’s trademarks and service
marks. The golf balls segment consists of Callaway Golf golf balls that are designed, manufactured and sold by the
Company. The Company also discloses information about geographic areas. This information is presented in Note 19 -
“Segment Information.”
Concentration of Credit Risk
The Company’s financial instruments that are subject to concentrations of credit risk consist primarily of cash
equivalents, trade receivables and foreign currency exchange contracts.
The Company historically invests its excess cash in money market accounts and short-term U.S. government
securities and has established guidelines relative to diversification and maturities in an effort to maintain safety and
liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.
The Company operates in the golf equipment industry and primarily sells its products to golf equipment retailers
(including pro shops at golf courses and off-course retailers), sporting goods retailers and mass merchants, directly and
through wholly-owned domestic and foreign subsidiaries, and to foreign distributors. The Company performs ongoing
credit evaluations of its customers’ financial condition and generally requires no collateral from these customers. The
Company maintains reserves for estimated credit losses, which it considers adequate to cover any such losses. At
December 31, 2013 and 2012, no single customer in the United States represented over 10% of the Company’s outstanding
accounts receivable balance. Managing customer-related credit risk is more difficult in regions outside of the United
States. In 2013, approximately 52% of the Company’s net sales were made in regions outside of the United States,
compared to approximately 53% in both 2012 and 2011. Prolonged unfavorable economic conditions in the United States
or in the Company’s international markets could significantly increase the Company’s credit risk.