Callaway 1998 Annual Report Download - page 27

CALLAWAY GOLF COMPANY
25
Inventories
Inventories are valued at the lower of cost or market.
Cost is determined using the first-in, first-out (FIFO)
method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation. Depreciation is computed
using the straight-line method over estimated useful
lives of three to fifteen years. Repair and maintenance
costs are charged to expense as incurred. The Company’s
property, plant and equipment are depreciated over the
following periods:
Buildings and improvements 10-15 years
Machinery and equipment 5 years
Furniture, computers and equipment 3-5 years
Production molds 3 years
Normal repairs and maintenance are expensed as
incurred. Expenditures that materially increase values,
change capacities or extend useful lives are capitalized.
Replacements are capitalized and the property, plant,
and equipment accounts are relieved of the items being
replaced. The related costs and accumulated deprecia-
tion of disposed assets are eliminated and any resulting
gain or loss on disposition is included in income.
Long-Lived Assets
The Company assesses potential impairments of its
long-lived assets when there is evidence that events or
changes in circumstances have made recovery of the
asset’s carrying value unlikely. An impairment loss
would be recognized when the sum of the expected
future net cash flows is less than the carrying amount of
the asset. During the fourth quarter of 1998, the
Company implemented a restructuring plan that
included a number of cost reduction actions and opera-
tional improvements (Note 11). As a result of this plan,
impairment losses were recorded for certain of the
Company’s long-lived assets.
Intangible Assets
Intangible assets consist primarily of trade name, trade-
mark, trade dress, patents and goodwill resulting from
the purchase of substantially all of the assets and
certain liabilities of Odyssey Sports, Inc. and goodwill
associated with the purchase of certain foreign distribu-
tors (Note 13). Intangible assets are amortized using the
straight-line method over periods ranging from three to
40 years. During 1998 and 1997, amortization of intan-
gible assets was $5,466,000 and $1,778,000 respective-
ly. Amortization expense for the year ended December
31, 1996 was not material.
Stock-Based Compensation
The Company measures compensation expense for its
stock-based employee compensation plans using the
intrinsic value method. Pro forma disclosures of net
income and earnings per share, as if the fair value-based
method had been applied in measuring compensation
expense, are presented in Note 7.
Income Taxes
Current income tax expense is the amount of income
taxes expected to be payable for the current year. A
deferred income tax asset or liability is established for
the expected future consequences resulting from differ-
ences in the financial reporting and tax bases of assets
and liabilities. Deferred income tax expense (benefit) is
the net change during the year in the deferred income
tax asset or liability.
Deferred taxes have not been provided on the
cumulative undistributed earnings of foreign sub-
sidiaries since such amounts are expected to be reinvest-
ed indefinitely. The Company provides a valuation
allowance for its deferred tax assets when, in the opinion
of management, it is more likely than not that such
assets will not be realized.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS
No. 130, “Reporting Comprehensive Income.” This
statement requires that all components of comprehen-
sive income be reported in the financial statements in
the period in which they are recognized. The compo-
nents of comprehensive income for the Company
include net income and foreign currency translation
adjustments. Since the Company has elected the indefi-
nite reversal criterion, it does not accrue income taxes on
foreign currency translation adjustments. The financial
statements of prior periods presented have been reclassi-
fied for comparative purposes.