Callaway 2007 Annual Report Download - page 92

The following table presents shares authorized, available for future grant and outstanding under each of the
Company’s plans as of December 31, 2007:
Authorized Available Outstanding(1)
(In thousands)
1991 Stock Incentive Plan ............................. 10,000 — 75
Promotion, Marketing and Endorsement Stock Incentive
Plan ............................................ 3,560 — 570
1995 Employee Stock Incentive Plan .................... 10,800 — 2,284
1996 Stock Option Plan ............................... 9,000 — 622
2001 Directors Plan .................................. 500 254 233
2004 Plan .......................................... 12,250 4,343 2,783
Employee Stock Purchase Plan ......................... 6,000 3,160 —
Non-Employee Directors Stock Option Plan .............. 840 — 104
Total .............................................. 52,950 7,757 6,671
(1) Outstanding shares do not include issued Restricted Stock awards that are subject to forfeitures.
Stock Options
All stock option grants made under the 2004 Plan and the 2001 Directors Plan are made at exercise prices no
less than the Company’s closing stock price on the date of grant. Outstanding stock options generally vest over a
three year period from the grant date and generally expire up to 10 years after the grant date. The Company
recorded $4,241,000 and $6,122,000 of compensation expense relating to outstanding stock options as of
December 31, 2007 and 2006, respectively. The Company was not required to record compensation expense
relating to outstanding options prior to the adoption date of SFAS 123R on January 1, 2006.
The Company records compensation expense for employee stock options based on the estimated fair value
of the options on the date of grant using the Black-Scholes option-pricing model. The model uses various
assumptions, including a risk-free interest rate, the expected term of the options, the expected stock price
volatility over the expected term of the options, and the expected dividend yield. Compensation expense for
employee stock options is recognized ratably over the vesting term and is reduced by an estimate for pre-vesting
forfeitures, which is based on the Company’s historical forfeitures of unvested options and awards. For the years
ended December 31, 2007 and 2006, the average estimated pre-vesting forfeiture rate used was 3.9% and 5.6%,
respectively. The table below summarizes the average fair value assumptions used in the valuation of stock
options granted during the years ended December 31, 2007, 2006 and 2005.
2007 2006 2005
Dividend yield ................................................... 2.0% 2.0% 2.0%
Expected volatility ................................................ 37.4% 39.5% 42.4%
Risk-free interest rate .............................................. 4.7% 4.7% 4.2%
Expected life .................................................... 3.1years 3.2 years 3.6 years
The dividend yield is based upon a three-year historical average. The expected volatility is based on the
historical volatility, among other factors, of the Company’s stock. The risk free interest rate is based on the U.S.
Treasury yield curve at the date of grant with maturity dates approximately equal to the expected term of the
options at the date of the grant. The expected life of the Company’s options is based on evaluations of historical
and expected future employee exercise behavior. The valuation model applied in this calculation utilizes highly
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