Callaway 1998 Annual Report Download - page 33

CALLAWAY GOLF COMPANY
31
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
(loss) income and (loss) earnings per share would be
changed to the pro forma amounts indicated below:
The pro forma amounts reflected above may not be
representative 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, 1998,
1997, and 1996, respectively:
The weighted-average grant-date fair value of
options granted during 1998 was $9.88 per share. The
Black-Scholes option valuation 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 assumptions can materially affect the
fair value estimates, in management’s opinion, the exist-
ing 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 8
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 annu-
al 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 com-
pensation. Additionally, the Company can make discre-
tionary contributions based on the profitability of the
Company. No discretionary contributions were made
for the years ended December 31, 1998 and 1997. For
the year ended December 31, 1996, the Company
recorded compensation expense for discretionary contri-
butions of $6,390,000. Employees contributed to the
401(k) Plan $5,601,000, $5,384,000 and $3,315,000 in
1998, 1997 and 1996, respectively. In accordance with
the provisions of the 401(k) Plan, the Company
matched employee contributions in the amount of
$4,673,000, $4,495,000 and $1,988,000 during 1998,
1997 and 1996, respectively.
The Company also has an unfunded, nonqualified
deferred compensation plan. The plan allows officers
and certain other employees of the Company to defer all
or part of their compensation, to be paid to the partici-
pants or their designated beneficiaries upon retirement,
death or separation from the Company. For the years
ended December 31, 1998, 1997 and 1996, the total
participant deferrals, which are reflected in long-term
liabilities, were $908,000, $1,166,000 and $2,564,000,
respectively.
(in thousands, Year ended December 31,
except per share data) 1998 1997 1996
Net (loss) income:
As reported $(26,564) $132,704 $122,337
Pro forma $(46,847) $124,978 $113,587
(Loss) earnings per
common share:
As reported
Basic $(0.38) $1.94 $1.83
Diluted $(0.38) $1.85 $1.73
Pro forma
Basic $(0.67) $1.83 $1.70
Diluted $(0.67) $1.77 $1.59
Year ended December 31,
1998 1997 1996
Dividend yield 1.9% 0.9% 0.9%
Expected volatility 42.0% 31.5% 31.5%
Risk free interest rates 4.66 - 4.72% 5.64 - 5.89% 5.32 - 7.66%
Expected lives 3 - 6 years 3 - 6 years 2 - 6 years