Callaway 1999 Annual Report Download - page 42

40 CALLAWAY GOLF COMPANY
Pro Forma Disclosures
If the Company had elected to recognize compensation
expense based upon the fair value at the grant date for
employee awards under these plans, the Company’s net
income (loss) and earnings (loss) per share would be changed
to the pro forma amounts indicated below:
(in thousands, except Year ended December 31,
per share data) 1999 1998 1997
Net income (loss):
As reported $55,322 ($26,564)$132,704
Pro forma $34,422 ($46,847)$124,978
Earnings (loss) per
common share:
As reported
Basic $0.79 ($0.38)$1.94
Diluted $0.78 ($0.38)$1.85
Pro forma
Basic $0.49 ($0.67)$1.83
Diluted $0.48 ($0.67)$1.77
The pro forma amounts reflected above may not be rep-
resentative of future disclosures since the estimated fair value
of stock options is amortized to expense as the options vest
and additional options may be granted in future years. The fair
value of employee stock options was estimated at the date of
grant using the Black-Scholes option pricing model with the
following assumptions for the years ended December 31,
1999, 1998, and 1997, respectively:
Year ended December 31,
1999 1998 1997
Dividend yield 1.4%1.9%0.9%
Expected volatility 45.6%42.0%31.5%
Risk free interest rates 5.36%–6.24%4.66–4.72%5.64–5.89%
Expected lives 3–4years 3–6years 3–6years
The weighted-average grant-date fair value of options
granted during 1999 was $3.57 per share. The Black-Scholes
option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restric-
tions 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 signif-
icantly different from those of traded options, and because
changes in subjective input assumptions can materially affect
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.
NOTE 9
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 ser-
vice requirements under the 401(k) Plan. Each participant may
elect to contribute up to 10% 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. Employees contributed to the 401(k)
Plan $5,486,000, $5,601,000 and $5,384,000 in 1999, 1998
and 1997, respectively. In accordance with the provisions of
the 401(k) Plan, the Company matched employee contribu-
tions in the amount of $4,510,000, $4,673,000 and
$4,495,000 during 1999, 1998 and 1997, respectively.
Additionally, the Company can make discretionary contribu-
tions based on the profitability of the Company. For the year
ended December 31, 1999, the Company recorded compensa-
tion expense for discretionary contributions of $3,605,000. No
discretionary contributions were made for the years ended
December 31, 1998 and 1997.
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 sepa-
ration from the Company. For the years ended December 31,
1999, 1998 and 1997, the total participant deferrals, which are
reflected in long-term liabilities, were $997,000, $908,000 and
$1,166,000, 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 (loss) before income tax provision
(benefit) was subject to taxes in the following jurisdictions for
the following periods:
(in thousands) Year ended December 31,
1999 1998 1997
Domestic $75,799 ($34,555)$212,453
Foreign 9,698 (4,344)1,312
$85,497 ($38,899)$213,765
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS