Callaway 2005 Annual Report Download - page 94

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CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Unearned compensation has been charged for the value of stock-based awards granted to both employees
and non-employees on the measurement date based on the valuation methods described above. These amounts
are amortized over the vesting period. The unamortized portion of unearned compensation is shown as a
reduction of shareholders’ equity in the accompanying consolidated balance sheet.
Note 11. Employee Benefit Plans
The Company has a voluntary deferred compensation plan under Section 401(k) of the Internal Revenue
Code (the “401(k) Plan”) for all employees who satisfy the age and service requirements under the 401(k) Plan.
Each participant may elect to contribute up to 25% of annual compensation, up to the maximum permitted under
federal law, and the Company is obligated to contribute annually an amount equal to 100% of the participant’s
contribution up to 6% of that participant’s annual compensation. The portion of the participant’s account
attributable to elective deferral contributions and rollover contributions are 100% vested and nonforfeitable.
Participants vest in employer matching and profit sharing contributions at a rate of 25% per year, becoming fully
vested after the completion of four years of service. Employees contributed $8,925,000, $9,065,000 and
$6,216,000 to the 401(k) Plan in 2005, 2004 and 2003, respectively. In accordance with the provisions of the
401(k) Plan, the Company matched employee contributions in the amount of $6,156,000, $6,608,000 and
$4,695,000 during 2005, 2004 and 2003, respectively. Additionally, the Company can make discretionary
contributions based on the profitability of the Company. For the years ended December 31, 2005 and 2004 there
were no discretionary contributions. For the year ended December 31, 2003, compensation expense for
discretionary contributions was $1,898,000.
The Company also has an unfunded, nonqualified 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
participants 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 compensation is included in other assets
and was $9,892,000 and $9,792,000 at December 31, 2005 and 2004, respectively. The liability for the deferred
compensation is included in long-term liabilities and was $8,323,000 and $8,674,000 at December 31, 2005, and
2004, respectively. For the years ended December 31, 2005 and 2004, the total participant deferrals were
$2,882,000 and $3,482,000, respectively.
Note 12. Income Taxes
The Company’s income (loss) before income tax provision was subject to taxes in the following
jurisdictions for the following periods (in thousands):
Year Ended December 31,
2005 2004 2003
United States ........................................... $(5,685) $(34,182) $50,803
Foreign ............................................... 20,222 10,469 17,080
$14,537 $(23,713) $67,883
F-26