Callaway 2001 Annual Report Download - page 55

Callaway Golf Company
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$6,353,000, $6,119,000 and $5,486,000 to the 401(k) Plan in 2001, 2000 and
1999, respectively. In accordance with the provisions of the 401(k) Plan, the
Company matched employee contributions in the amount of $4,474,000,
$4,706,000 and $4,510,000 during 2001, 2000 and 1999, respectively.
Additionally, the Company can make discretionary contributions based on
the profitability of the Company. For the years ended December 31, 2001,
2000 and 1999, the Company recorded compensation expense for discre-
tionary contributions of $3,786,000, $3,799,000 and $3,605,000, respectively.
The Company also has an unfunded, non-qualified deferred compensation
plan. The plan allows officers, certain other employees and directors of the
Company to defer all or part of their compensation, to be paid to the partic-
ipants or their designated beneficiaries upon retirement, death or separation
from the Company. To support the deferred compensation plan, the
Company has elected to purchase Company-owned life insurance. The cash
surrender value of the Company-owned insurance related to deferred com-
pensation is included in other assets and was $10,556,000 and $8,310,000 at
December 31, 2001 and 2000, respectively. The liability for the deferred com-
pensation is included in long-term liabilities and was $8,297,000 and
$9,884,000 at December 31, 2001 and 2000, respectively. For the years ended
December 31, 2001, 2000 and 1999, the total participant deferrals, which are
reflected in long-term liabilities, were $836,000, $843,000 and $997,000,
respectively. Included in other income during 1999 were net proceeds from
an insurance policy related to the deferred compensation plan of $3,622,000.
NOTE 10
Income Taxes
The Company’s income before income tax provision was subject to taxes in
the following jurisdictions for the following periods:
(in thousands) Year Ended December 31,
2001 2000 1999
United States $ 75,872 $ 101,890 $ 75,799
Foreign 22,320 27,432 9,698
$ 98,192 $ 129,322 $ 85,497
The provision for income taxes is as follows:
(in thousands) Year Ended December 31,
2001 2000 1999
Current tax provision:
Federal $ 23,056 $ 26,616 $ 14,779
State 3,350 5,130 2,774
Foreign 8,273 10,623 3,044
Deferred tax expense (benefit):
Federal 3,595 7,463 8,956
State 1,526 (1,596) 1,162
Foreign 17 (870) (540)
Income tax provision $ 39,817 $ 47,366 $ 30,175
During 2001, 2000 and 1999, the Company recognized certain tax benefits
related to stock option exercises in the amount of $14,520,000, $6,806,000
and $2,377,000, respectively. Such benefits were recorded as a reduction of
income taxes payable and an increase in paid-in capital.
Deferred tax assets and liabilities are classified as current or noncurrent
according to the classification of the related asset or liability. Significant com-
ponents of the Company’s deferred tax assets and liabilities as of December
31, 2001 and 2000 are as follows:
(in thousands) December 31,
2001 2000
Deferred tax assets:
Reserves and allowances $ 20,032 $ 22,365
Depreciation and amortization 2,962 12,225
Compensation and benefits 5,506 7,208
Effect of inventor y overhead adjustment 3,571 1,934
Compensatory stock options and rights 2,344 3,473
Foreign net operating loss carryforwards — 107
Revenue recognition 8,433 1,320
Long-lived asset impairment 1,738 1,738
Capital loss carr yforward 283 834
Tax credit carryforwards 2,192 3,200
Other 5,612 1,793
Total deferred tax assets 52,673 56,197
Valuation allowance for deferred tax assets (2,764) (1,354)
Deferred tax assets, net of valuation allowance 49,909 54,843
Deferred tax liabilities:
State taxes, net of federal income tax benefit (2,361) (2,157)
Net deferred tax assets $ 47,548 $ 52,686
At December 31, 2001, the Company had $2,192,000 of credit carryforwards
primarily relating to state investment tax credits which expire at various dates
between December 31, 2007 and 2009.
A valuation allowance has been established due to the uncertainty of realiz-
ing certain tax attribute carryforwards, and a portion of other deferred tax
assets. Based on management’s assessment, it is more likely than not that all
the net deferred tax assets will be realized through future earnings.
A reconciliation of income taxes computed by applying the statutory U.S.
income tax rate to the Company’s income before income taxes to the income
tax provision is as follows:
(in thousands) Year Ended December 31,
2001 2000 1999
Amounts computed at statutory
U.S. tax rate $ 34,367 $ 45,263 $ 29,924
State income taxes, net of
U.S. tax benefit 4,047 4,112 3,046
State tax credits, net of
U.S. tax benefit (878) (325) (2,075)
Nondeductible foreign losses — 65 (476)
Expenses with no tax benefit 693 931 814
Nondeductible capital losses — — 130
Foreign sales corporation
tax benefits (1,406) (1,487) (1,471)
Nontaxable insurance proceeds — — (1,408)
Change in deferred tax
valuation allowance 1,410 (2,836) 2,431
Other 1,584 1,643 (740)
Income tax provision $ 39,817 $ 47,366 $ 30,175
U.S. tax return examinations have been completed for the years through
1994. Management believes adequate provisions for income tax have been
recorded for all years.