Callaway 2004 Annual Report Download - page 77

CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The weighted-average grant-date fair value of options granted during 2004, 2003 and 2002 was $4.80,
$6.74 and $6.17 per share, respectively. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have characteristics signiÑcantly
diÅerent from those of traded options, and because changes in subjective input assumptions can materially
aÅect the fair value estimates, in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of grants under the Company's employee stock-based compensation
plans.
Income Taxes
Current income tax expense (beneÑt) is the amount of income taxes expected to be paid (refunded) for
the current year. A deferred income tax asset or liability is established for the expected future consequences
resulting from temporary diÅerences in the Ñnancial reporting and tax bases of assets and liabilities. Deferred
income tax expense (beneÑt) 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 indeÑnitely. 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 (Note 12).
Interest and Other Income, Net
Interest and other income, net primarily includes gains and losses on foreign currency transactions,
interest income and gains and losses on investments to fund the deferred compensation plan. The components
of interest and other income, net are as follows:
Year Ended December 31,
2004 2003 2002
(In thousands)
Foreign currency gains ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 744 $1,567 $2,046
Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 745 1,098 Ì
Gains on deferred compensation plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 360 888 156
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 85 (3) 69
$1,934 $3,550 $2,271
Other Accumulated Comprehensive Income (Loss)
Components of comprehensive income are reported in the Ñnancial 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 Öow hedges, foreign currency translation adjustments and unrealized gains
or losses on marketable securities. Since the Company has met the indeÑnite reversal criteria, it does not
accrue income taxes on foreign currency translation adjustments. During 2004, no gains or losses were
F-12