Callaway 2004 Annual Report Download - page 91

CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Employee Stock Purchase Plan
On May 25, 2004 the Company's shareholders approved the amendment and restatement of the
Company's 1999 Employee Stock Purchase Plan. The amended and restated plan was renamed the Callaway
Golf Company Employee Stock Purchase Plan (the ""ESPP'' or the ""Plan'') and authorized an additional
4,000,000 shares for issuance under the Plan. Additionally, the Plan was amended to shorten the look-back
period from two years to one year. Under the amended and restated Plan participating employees authorize
the Company to withhold compensation and to use the withheld amounts to purchase shares of the Company's
Common Stock at 85% of the lower of the fair market value on the Ñrst day of a one year oÅering period or the
last day of each six month exercise period. During 2004, 2003 and 2002, approximately 417,000, 385,000 and
439,000 shares, respectively, of the Company's Common Stock were purchased under the Employee Stock
Purchase Plan. As of December 31, 2004, there were 4,033,000 shares reserved for future issuance under the
Plan.
Compensation Expense
During 2004, 2003 and 2002, the Company recorded $1,741,000, $15,000 and $314,000, respectively, in
compensation expense for Restricted Common Stock and certain options to purchase shares of Common
Stock granted to employees, oÇcers, 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.
Shareholders' Rights Plan
The Company has a plan to protect shareholders' rights in the event of a proposed takeover of the
Company. This plan is not intended to prevent transactions which provide full and fair value to shareholders. It
is intended to discourage abusive takeover tactics and to provide time for the Company's Board of Directors to
review and evaluate what is in the best interests of shareholders. Under the plan, each share of the Company's
outstanding Common Stock carries one right to purchase one one-thousandth of a share of the Company's
Series ""A'' Junior Participating Preferred Stock (the ""Right''). The Right entitles the holder, under certain
circumstances, to purchase Common Stock of Callaway Golf Company or of the acquiring company at a
substantially discounted price ten days after a person or group publicly announces it has acquired or has
tendered an oÅer for 15% or more of the Company's outstanding Common Stock. The Rights are redeemable
by the Company at $0.01 per Right. The shareholder rights plan, and related rights, are scheduled to expire in
June 2005.
Note 11. Employee BeneÑt 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 25% 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
$9,065,000, $6,216,000 and $6,502,000 to the 401(k) Plan in 2004, 2003 and 2002, respectively. In accordance
with the provisions of the 401(k) Plan, the Company matched employee contributions in the amount of
$6,608,000, $4,695,000 and $4,912,000 during 2004, 2003 and 2002, respectively. Additionally, the Company
can make discretionary contributions based on the proÑtability of the Company. For the years ended
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