Callaway 2006 Annual Report Download - page 92

CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
qualified employee benefit plans. The GST shares are used primarily for the settlement of employee equity-based
awards, including stock option exercises and employee stock plan purchases. The existence of the GST will have
no impact upon the amount of benefits or compensation that will be paid under the Company’s employee benefit
plans. The GST acquires, holds and distributes shares of the Company’s Common Stock in accordance with the
terms of the trust. Shares held by the GST are voted in accordance with voting directions from eligible
employees of the Company as specified in the GST.
In conjunction with the formation of the GST, the Company issued 4,000,000 shares of newly issued
Common Stock to the GST in exchange for a promissory note in the amount of $60,575,000 ($15.14 per share).
In December 1995, the Company issued an additional 1,300,000 shares of newly issued Common Stock to the
GST in exchange for a promissory note in the amount of $26,263,000 ($20.20 per share). In July 2001, the
Company issued 5,837,000 shares of Common Stock held in treasury to the GST in exchange for a promissory
note in the amount of $90,282,000 ($15.47 per share). The issuance of these shares to the GST had no net impact
on shareholders’ equity.
For financial reporting purposes, the GST is consolidated with the Company. The value of shares owned by
the GST are accounted for as a reduction to shareholders’ equity until used in connection with the settlement of
employee stock option exercises, employee stock plan purchases or other awards. Each period, the shares owned
by the GST are valued at the closing market price, with corresponding changes in the GST balance reflected in
additional paid-in capital. The issuance of shares by the GST is accounted for by reducing the GST and
additional paid-in capital accounts proportionately as the shares are released. The GST does not impact the
determination or amount of compensation expense for the benefit plans being settled. The GST shares do not
have any impact on the Company’s earnings per share until they are used in connection with the settlement of
employee stock option exercises, employee stock plan purchases or other awards.
The following table presents shares released from the GST for the settlement of employee stock option
exercises and employee stock plan purchases for the years ended December 31, 2006, 2005 and 2004:
Year Ended December 31,
2006 2005 2004
(In thousands)
Employee stock option exercises ................................... 468 853 1,109
Employee stock plan purchases .................................... 303 369 417
Total shares released from the GST ............................. 771 1,222 1,526
Note 12. Share-Based Employee Compensation
Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 123R (“SFAS 123R”), “Share-Based Payment,” which requires the measurement and recognition
of compensation expense for all share-based payment awards to employees and directors based on estimated fair
values. SFAS 123R supersedes the Company’s previous accounting methodology which used the intrinsic value
method under Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to
Employees.” Under the intrinsic value method, no share-based compensation expense related to stock option
awards granted to employees or directors had been recognized in the Company’s Consolidated Statements of
Operations, as all stock option awards granted under the plans had an exercise price equal to the Company’s
closing stock price on the date of grant.
The Company adopted SFAS 123R using the modified prospective transition method. Under this transition
method, periods prior to December 31, 2005 are not restated and compensation expense for all share-based
F-24