Callaway 2014 Annual Report Download - page 79

F-11
available and independent appraisals as appropriate. The Company also considers its counterparty’s and own credit risk on
derivatives and other liabilities measured at their fair value.
Advertising Costs
The Company's primary advertising costs are from television and print media advertisements. The Company’s policy is
to expense advertising costs, including production costs, as incurred. Advertising expenses for 2014, 2013 and 2012 were
$55,502,000, $53,707,000 and $65,068,000, respectively.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs for 2014, 2013 and 2012
were $31,285,000, $30,937,000 and $29,542,000, respectively.
Foreign Currency Translation and Transactions
The Company’s foreign subsidiaries utilize their local currency as their functional currency. The accounts of these foreign
subsidiaries have been translated into United States dollars using the current exchange rate at the balance sheet date for assets
and liabilities and at the average exchange rate for the period for revenues and expenses. Cumulative translation gains or
losses are recorded as accumulated other comprehensive income in shareholders’ equity. Gains or losses resulting from
transactions that are made in a currency different from the functional currency are recognized in earnings as they occur. The
Company recorded a net loss in foreign currency transactions of $6,198,000, $821,000 and $3,343,000 in 2014, 2013 and
2012, respectively.
Derivatives and Hedging
The Company uses derivative financial instruments to manage its exposure to foreign exchange rates. The derivative
instruments are accounted for pursuant to ASC Topic 815, “Derivatives and Hedging,” which requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet, measure those instruments at fair value and recognize changes
in the fair value of derivatives in earnings in the period of change unless the derivative qualifies as an effective hedge that
offsets certain exposures. As of December 31, 2014, the Company had derivative financial instruments in the form of foreign
currency forward contracts and put and call option contracts that were not designated as hedging instruments in accordance
with ASC Topic 815.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments purchased with original maturities of three months or less.
Trade Accounts Receivable
The Company records its trade accounts receivable at net realizable value. This value includes an appropriate allowance
for estimated uncollectible accounts to reflect any loss anticipated on the trade accounts receivable balances and charged to
the provision for doubtful accounts.
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. Actual uncollected amounts have historically been consistent with the Company’s expectations.
The decrease in the allowance for estimated losses as of December 31, 2014 was primarily due to the write-off of uncollectible
amounts for a large customer that filed for Chapter 11 under the U.S. Bankruptcy Code in 2013.