Callaway 2015 Annual Report Download - page 81

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F-11
The following table provides a reconciliation of the activity related to the Company’s allowance for sales returns:
Years Ended December 31,
2015 2014 2013
(In thousands)
Beginning balance .......................................................................................................... $ 8,944 $ 7,334 $ 6,383
Provision....................................................................................................................... 35,746 36,980 32,127
Sales returns ................................................................................................................. (36,542)(35,370)(31,176)
Ending balance................................................................................................................ $ 8,148 $ 8,944 $ 7,334
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 increased to $1,119,000 at December 31, 2015 from $1,082,000 at December 31, 2014.
The amounts are recorded in accounts payable and accrued expenses on the accompanying consolidated balance sheets.
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
$8,062,000, $8,881,000 and $9,130,000 during 2015, 2014 and 2013, 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 following table provides a reconciliation of the activity related to the Company’s reserve for warranty expense:
Years Ended December 31,
2015 2014 2013
(In thousands)
Beginning balance .......................................................................................................... $ 5,607 $ 6,406 $ 7,539
Provision....................................................................................................................... 5,220 4,724 5,177
Claims paid/costs incurred ........................................................................................... (5,121)(5,523)(6,310)
Ending balance................................................................................................................ $ 5,706 $ 5,607 $ 6,406
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability (the exit
price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market
participants. The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing
a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable
or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable
inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available.
The measurement of assets and liabilities at fair value are classified using the following three-tier hierarchy:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable
in active markets; and
Level 3: Fair value measurements derived from valuation techniques in which one or more significant inputs or significant
value drivers are unobservable.