Callaway 2004 Annual Report Download - page 76

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CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
amortized over periods ranging from Ñve 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 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 interpretations. The Company accounts for its stock-based non-employee
compensation plans using SFAS No. 123, ""Accounting for Stock-Based Compensation.'' All employee stock
option 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 reÖected in net income for those awards. For the years ended
December 31, 2004, 2003 and 2002, the Company recorded compensation expense of $1,741,000, $15,000 and
$314,000, in net income as a result of restricted stock awards and certain options to purchase shares of stock
granted to employees, oÇcers, professional endorsers and consultants of the Company. Pro forma disclosures
of net income (loss) and earnings (loss) 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:
Year Ended December 31,
2004 2003 2002
(In thousands, except per share data)
Net income (loss), as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(10,103) $45,523 $ 69,446
Add: Stock-based employee compensation expense
included in reported net income, net of related tax
eÅects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 84 10 114
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax eÅects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (6,605) (9,839) (11,003)
Pro forma net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(16,624) $35,694 $ 58,557
Earnings (loss) per Common Share:
Basic Ì as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (0.15) $ 0.69 $ 1.04
Basic Ì pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (0.25) $ 0.54 $ 0.88
Diluted Ì as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (0.15) $ 0.68 $ 1.03
Diluted Ì pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (0.25) $ 0.54 $ 0.88
The pro forma amounts reÖected 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:
Year Ended December 31,
2004 2003 2002
Dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.9% 1.7% 1.7%
Expected volatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 42.6% 46.1% 52.2%
Risk free interest rates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.74% - 4.26% 2.26% - 2.75% 1.94% - 2.37%
Expected lives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3-4 years 3-4 years 3-4 years
F-11