Callaway 2000 Annual Report Download - page 42

Callaway Golf Company | 42
Compensation Expense
During 2000, 1999 and 1998, the Company recorded $2,162,000,
$1,370,000 and $2,321,000, respectively, in compensation
expense for Restricted Common Stock and certain options to
purchase shares of Common Stock granted to employees, offi-
cers, professional endorsers and consultants of the Company. The
valuation of options granted to non-employees is estimated
using the Black-Scholes option pricing model.
Unearned compensation has been charged for the value of
options 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 consoli-
dated balance sheet.
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 indi-
cated below:
(in thousands, except per share data) Year Ended December 31,
2000 1999 1998
Net income (loss):
As reported $80,999 $55,322 $(26,564)
Pro forma $58,761 $34,422 $(46,847)
Earnings (loss) per
common share:
As reported
Basic $1.16 $0.79 $(0.38)
Diluted $1.13 $0.78 $(0.38)
Pro forma
Basic $0.84 $0.49 $(0.67)
Diluted $0.83 $0.48 $(0.67)
The pro forma amounts reflected above may not be represen-
tative 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:
Year Ended December 31,
2000 1999 1998
Dividend yield 1.1% 1.4% 1.9%
Expected volatility 53.0% 45.6% 42.0%
Risk free interest
rates 5.18% - 5.56% 5.36% - 6.24% 4.66% - 4.72%
Expected lives 3 - 4 years 3 - 4 years 3 - 6 years
The weighted-average grant-date fair value of options granted
during 2000 was $6.91 per share. The Black-Scholes option valua-
tion 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 significantly different from those of
traded options, and because changes in subjective input assump-
tions can materially affect the fair value estimates, in manage-
ment’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 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 10% of annual compensation, up to the maximum permit-
ted under federal law, and the Company is obligated to contribute
annually an amount equal to 100% of the participant’s contribu-
tion up to 6% of that participant’s annual compensation.
Employees contributed $6,119,000, $5,486,000 and $5,601,000 to
the 401(k) Plan in 2000, 1999 and 1998, respectively. In accor-
dance with the provisions of the 401(k) Plan, the Company
matched employee contributions in the amount of $4,706,000,
$4,510,000 and $4,673,000 during 2000, 1999 and 1998, respec-
tively. Additionally, the Company can make discretionary contri-
butions based on the profitability of the Company. For the years
ended December 31, 2000 and 1999, the Company recorded com-
pensation expense for discretionary contributions of $3,799,000
and $3,605,000. No discretionary contributions were made for the
year ended December 31, 1998.
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 desig-
nated beneficiaries upon retirement, death or separation from the
Company. For the years ended December 31, 2000, 1999 and 1998,
the total participant deferrals, which are reflected in long-term
liabilities, were $843,000, $997,000 and $908,000, respectively.
Included in other income during 1999 were net proceeds from an
insurance policy related to the deferred compensation plan of
$3,622,000.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS