Callaway 2003 Annual Report Download - page 67

64 CALLAWAY GOLF COMPANY
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 15% 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
$6,216,000, $6,502,000 and $6,353,000 to the 401(k) Plan
in 2003, 2002 and 2001, respectively. In accordance with
the provisions of the 401(k) Plan, the Company matched
employee contributions in the amount of $4,695,000,
$4,912,000 and $4,474,000 during 2003, 2002 and 2001,
respectively. Additionally, the Company can make discre-
tionary contributions based on the profitability of the
Company. For the years ended December 31, 2003, 2002 and
2001, the Company recorded compensation expense for
discretionary contributions of $1,898,000, $2,669,000 and
$3,786,000, respectively.
The Company also has an unfunded, non-qualified 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 $9,905,000 and
$9,139,000 at December 31, 2003 and 2002, respectively.
The liability for the deferred compensation is included in
long-term liabilities and was $ 8,947,000 and $7,375,000 at
December 31, 2003 and 2002, respectively. For the years
ended December 31, 2003 and 2002, the total participant
deferrals were $1,544,000 and $1,634,000, respectively.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (“1999
ESPP”), pursuant to which participating employees authorize
the Company to withhold compensation and to use the with-
held amounts to purchase shares of the Company’s Common
Stock at 85% of the lower of the fair market value on the first
day of a two year offering period or the last day of each six month
exercise period. During 2003, 2002 and 2001, approximately
385,000, 443,000 and 506,000 shares, respectively, of the
Company’s Common Stock were purchased under the 1999
ESPP or the ESPP. As of December 31, 2003, 450,000 shares
were reserved for future issuance under the 1999 ESPP.
Compensation Expense
During 2003, 2002 and 2001, the Company recorded $15,000,
$314,000 and $342,000, respectively, in compensation
expense for Restricted Common Stock and certain options to
purchase shares of Common Stock granted to employees, officers,
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
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.
Restricted Common Stock
During 1998, the Company granted 130,000 shares of
Restricted Common Stock with a fair value of $31 per share
to 26 officers of the Company. Of these shares, 83,750 shares
were canceled due to the service requirement not being met.
During 1998, the Company, at its discretion, accelerated the
vesting of 20,000 shares and recorded related compensation
expense of $618,000. The remaining 26,250 shares, vested
on January 1, 2003. The net compensation expense of
$814,000 related to the remaining shares was recognized
ratably over the vesting period, based on the difference
between the exercise price and market value of the stock on
the measurement date.