Callaway 2000 Annual Report Download - page 36

Callaway Golf Company | 36
current release. The upgrade includes improved functionalities and
provides the Company the opportunity to build upon its investment
in the software. As a result of this upgrade, the Company expects
that this business system will have a greater useful life to the
Company than originally estimated. Therefore, the Company has
extended the estimated useful life of its business system by three
years. The effect of this change in accounting estimate reduced
depreciation expense by $1,319,000 for the year ended December
31, 2000. The resulting increase in net income increased the
Company’s earnings per share by $0.01 for the year ended December
31, 2000.
Long-Lived Assets
The Company assesses potential impairments of its long-lived
assets when there is evidence that events or changes in circum-
stances 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 operational improvements (Note 14). As a
result of this plan, impairment losses were recorded in 1998 for
certain of the Company’s long-lived assets.
Intangible Assets
Intangible assets consist primarily of trade name, trademark, trade
dress, patents and goodwill resulting from the 1997 purchase of
substantially all of the assets and certain liabilities of Odyssey
Sports, Inc. and goodwill associated with the purchase of certain
foreign distributors (Note 15). Intangible assets are amortized
using the straight-line method over periods ranging from three to
40 years. During 2000, 1999 and 1998, amortization of intangible
assets was $7,195,000, $7,476,000 and $5,466,000 respectively.
Stock-Based Compensation
The Company measures compensation expense for its stock-based
employee compensation awards 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 com-
pensation expense, are presented in Note 10. Compensation
expense for non-employee stock-based compensation awards is
measured using the fair-value method.
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 conse-
quences resulting from differences 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 subsidiaries since such amounts
are expected to be reinvested 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
SFAS No. 130, “Reporting Comprehensive Income,” requires that
all components of comprehensive income be reported in the finan-
cial statements in the period in which they are recognized. The
components of comprehensive income for the Company include
net income, unrealized gains or losses on cash flow hedges and
foreign currency translation adjustments. Since the Company has
met the indefinite reversal criterion, it does not accrue income
taxes on foreign currency translation adjustments. During 2000,
the Company recorded $954,000, net of tax benefit of $645,000,
related to net unrealized losses on cash flow hedges. No amounts
were reclassified to earnings during 2000.
Segment Information
The Company utilizes the management approach to report seg-
ment information. The management approach designates the
international organization that is used by management for mak-
ing operating decisions and assessing performance as the source
of the Company’s reportable segments. The Company also discloses
information about products and services, geographic areas and
major customers. This information is presented in Note 16.
Diversification of Credit Risk
The Company’s financial instruments that are subject to concentra-
tions of credit risk consist primarily of cash equivalents and trade
receivables.
The Company may invest its excess cash in money market
accounts and 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 pri-
marily sells its products to golf equipment retailers, directly and
through wholly-owned domestic and foreign subsidiaries, and to
foreign distributors. The Company performs ongoing credit evalu-
ations of its customers’ financial condition and generally requires
no collateral from these customers. The Company maintains
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS