Callaway 2006 Annual Report Download - page 80

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CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
value is determined based on the closing price of the Company’s Common Stock on the award date multiplied by
the number of awards expected to vest. The number of awards expected to vest is based on the number of awards
granted adjusted by estimated forfeiture rates. The total compensation cost is then recognized ratably over the
vesting period.
During 2006, the Company granted Performance Units to certain employees under the Company’s 2004
Equity Incentive Plan. Performance Units are a form of share-based award in which the number of shares
ultimately received depends on the Company’s performance against specified performance targets over a three
year period ending on December 31, 2008. The estimated fair value of the Performance Units is determined
based on the closing price of the Company’s Common Stock on the award date multiplied by the expected
number of shares to be issued at the end of the performance period. The compensation cost is then amortized
straight-line over the performance period. The Company uses forecasted performance metrics to estimate the
number of Performance Units to be issued as well as approval from the Compensation and Management
Succession Committee.
Income Taxes
Current income tax expense (benefit) 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 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 (see Note 14).
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,
2006 2005 2004
(In thousands)
Foreign currency gains (losses) .......................................... $ 251 $(2,441) $ 744
Interest income ....................................................... 1,329 900 745
Gains on deferred compensation plan assets ................................ 1,776 1,209 360
Other ............................................................... 8 (58) 85
$3,364 $ (390) $1,934
Other Accumulated Comprehensive Income
Components of comprehensive income are reported in the financial statements in the period in which they
are recognized. The components of comprehensive income for the Company include net income, unrealized gains
on cash flow hedges and foreign currency translation adjustments. Since the Company has met the indefinite
F-12