Callaway 2014 Annual Report Download - page 40

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24
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 increased to $1.1 million at December 31, 2014 from $1.0 million at December 31,
2013.
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
licensing of its integrated device business to a third-party, the Company maintained 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 $1.8 million at December 31, 2013 to $1.4 million at December 31, 2014.
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 in uncollectible accounts
over the 2014 recorded estimated allowance for doubtful accounts, pre-tax income for the year ended December 31, 2014
would have decreased by approximately $0.6 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 in obsolete or unmarketable
inventory over the 2014 recorded estimated allowance for obsolete or unmarketable inventory, pre-tax income for the year
ended December 31, 2014 would have decreased 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 more frequently whenever indicators are present that the carrying
amounts of these assets may not be fully recoverable. Determining whether an impairment has occurred typically requires
various estimates and assumptions, including determining the amount of undiscounted cash flows directly related to the
potentially impaired asset, the useful life over which cash flows will occur, the timing of the impairment test, and the asset’s
residual value, if any.
To determine fair value, the Company uses its internal cash flow estimates discounted at an appropriate rate, quoted
market prices, royalty rates when available and independent appraisals as appropriate. Any required impairment loss is
measured as the amount by which the carrying amount of the asset exceeds its fair value and is recorded as a reduction in the
carrying value of the asset and a charge to earnings.