Callaway 2003 Annual Report Download - page 51

48 CALLAWAY GOLF COMPANY
foreign distributors. During 2001, goodwill and intangible
assets were amortized using the straight-line method over periods
ranging from three to 40 years. See Note 3, for further discus-
sion of the intangible assets acquired in connection with the
Top-Flite Acquisition.
In June 2001, the FASB issued SFAS No. 142, “Goodwill and
Other Intangible Assets.” Under SFAS No. 142, acquired intan-
gible assets must be separately identified. Goodwill and other
intangible assets with indefinite lives are not amortized, but are
reviewed at least annually for impairment. Acquired intangible
assets with definite lives are amortized over their individual
useful lives. In addition to goodwill, the Company’s intangible
assets with indefinite lives consist of trade name, trademark
and trade dress. In accordance with SFAS No. 142, the goodwill
and other intangible assets with indefinite lives that were being
amortized over periods ranging from five to 40 years follow the
non-amortization approach beginning January 1, 2002. Patents
and other intangible assets are amortized using the straight-line
method over periods ranging from less than one year to sixteen
years (Note 6).
Stock-Based Compensation
The Company has stock-based employee compensation plans,
which are described in Note 10. The Company accounts for its
stock-based employee compensation plans using the recognition
and measurement principles (intrinsic value method) of
Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related inter-
pretations. For the years ended December 31, 2003, 2002 and
2001, the Company recorded compensation expense of
$15,000, $184,000 and $301,000, in net income as a result of
the restricted stock awards granted in 1998. All other employee
stock-based awards were granted with an exercise price equal
to the market value of the underlying common stock on the
date of grant and no compensation cost is reflected in net
income from operations for those awards. Pro forma disclosures
of net income and earnings per share, as if the fair value-based
recognition provisions of SFAS No. 123, “Accounting for
Stock-Based Compensation” had been applied in measuring
stock-based employee compensation expense, are as follows:
Years Ended December 31,
(In thousands, except per-share data) 2003 2002 2001
Net income:
Net income, as reported $45,523 $69,446 $ 58,375
Add: Stock-based employee
compensation expense
included in reported
net income, net of
related tax effects 10 114 179
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects (9,839) (11,003) (14,606)
Pro forma net income $35,694 $58,557 $ 43,948
Earnings per Common Share:
Basic — as reported $ 0.69 $ 1.04 $ 0.84
Basic — pro forma $ 0.54 $ 0.88 $ 0.63
Diluted — as reported $ 0.68 $ 1.03 $ 0.82
Diluted — pro forma $ 0.54 $ 0.88 $ 0.62
The pro forma amounts reflected above may not be representa-
tive 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:
Years Ended December 31,
2003 2002 2001
Dividend yield 1.7% 1.7% 1.6%
Expected
volatility 46.1% 52.2% 53.9%
Risk free
interest rates 2.26% - 2.75% 1.94% - 2.37% 3.81% - 4.22%
Expected lives 3-4 years 3-4 years 3-4 years
The weighted-average grant-date fair value of options granted
during 2003, 2002 and 2001 was $6.74, $6.17 and $6.98 per
share, respectively. The Black-Scholes option valuation model