Callaway 2002 Annual Report Download - page 49

46 CALLAWAY GOLF COMPANY
Ye ar Ended Decem be r 31,
(In thousands) 2002 2001 2000
Royalty income $ 1,016 $ 3,231 $ 2,669
Net foreign currency
gains (losses) 2,046 2,533 (147)
Net interest income and
gains (losses) on deferred
compensation plan assets 156 1,462 6,157
Gain on sale of securities 95 1,597 57
Net losses on excess
energy sales — (2,052) —
Other (63) 378 55
$3,250 $ 7,149 $ 8,791
exceeds its fair value. The carrying amount of a long-lived asset
(asset group) is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and
eventual disposition of the asset (asset group).
Goodwill and Intangible Assets
Goodwill and intangible assets consist primarily of goodwill,
trade name, trademark, trade dress, and patents 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. During 2001 and
2000, goodwill and intangible assets were amortized using the
straight-line method over periods ranging from three to 40 years.
In June 2001, the FASB issued SFAS No. 142, “Goodwill and
Other Intangible Assets.” Under SFAS No. 142, acquired intangible
assets must be separately identified. Goodwill and other
intangible assets with indefinite lives are not amortized, but are
reviewed at least annually for impairment. Acquired intangible
assets with definite lives are amortized over their individual use-
ful lives. In addition to goodwill, the Company’s intangible assets
with indefinite lives consist of trade name, trademark and trade
dress. In accordance with SFAS No. 142, the goodwill and other
intangible assets with indefinite lives that were being amortized
over periods ranging from five to 40 years follow the non-
amortization approach beginning January 1, 2002. Patents and
other intangible assets are amortized using the straight-line method
over periods ranging from three to sixteen years (see Note 5).
Stock-Based Compensation
The Company has stock-based employee compensation plans,
which are described in Note 9. The Company accounts for its
stock-based employee compensation plans using the recognition
and measurement principles (intrinsic value method) of
Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related inter-
pretations. For the years ended December 31, 2002, 2001 and
2000, the Company recorded compensation expense of
$184,000, $301,000 and $401,000, in net income as a result of the
restricted stock awards granted in 1998. All other employee
stock-based awards were granted with an exercise price equal
to the market value of the underlying common stock on the date
of grant and no compensation cost is reflected in net income
from operations for those awards. Pro forma disclosures of net
income and earnings per share, as if the fair value-based
method had been applied in measuring stock-based employee
compensation expense, are presented in Note 9. 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
consequences resulting from temporary 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.
Interest and Other Income, Net
Interest and other income, net includes royalty income, gains
and losses on foreign currency transactions, interest income and
gains and losses on investments to fund the deferred compensation
plan, gains on the sale of marketable securities and losses
generated from the sale of the Company’s excess energy supply.
The components of interest and other income, net are as follows: