Callaway 2008 Annual Report Download - page 100

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Share-Based Compensation Expense
The table below summarizes the amounts recognized in the financial statements for the years ended
December 31, 2008, 2007 and 2006 for share-based compensation related to employees and directors. Amounts
are in thousands, except for per share data.
2008 2007 2006
Cost of sales ........................................................ $ 553 $ 490 $ 484
Operating expenses .................................................. 7,059 7,141 8,172
Total cost of employee share-based compensation included in income, before
income tax ................................................... 7,612 7,631 8,656
Amount of income tax recognized in earnings ............................. (2,014) (2,320) (2,813)
Amount charged against net income ..................................... $5,598 $ 5,311 $ 5,843
Impact on net income per common share:
Basic .............................................................. $ (0.09) $ (0.08) $ (0.08)
Diluted ............................................................ $ (0.09) $ (0.08) $ (0.08)
From time to time, the Company accelerates the vesting of certain share-based awards as a result of
employee terminations. In connection with the accelerations, the Company recognized pre-tax expense in the
amount of $149,000 and $1,330,000 for the years ended December 31, 2008 and 2006, respectively. There was
no accelerated vesting in 2007. In addition, the Company recorded expense of $3,221,000 and $3,261,000 for
Restricted Stock awards granted to certain non-employees for the years ended December 31, 2007 and 2006,
respectively, and reversed expense of $705,000 for the year ended December 31, 2008 to revalue shares of
Restricted Stock at market value.
Note 13. Employee Benefit 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 during the periods presented herein, the Company was obligated to contribute annually an
amount equal to 100% of the participant’s contribution up to 6% of that participant’s annual compensation. The
portion of the participant’s account attributable to elective deferral contributions and rollover contributions are
100% vested and nonforfeitable. Participants vest in employer matching and profit sharing contributions at a rate
of 25% per year, becoming fully vested after the completion of four years of service. Employees contributed
$10,019,000, $9,200,000 and $9,235,000 to the 401(k) Plan in 2008, 2007 and 2006, respectively. In accordance
with the provisions of the 401(k) Plan, the Company matched employee contributions in the amount of
$7,098,000, $6,379,000 and $6,307,000 during 2008, 2007 and 2006, respectively. Additionally, the Company
can make discretionary contributions based on the profitability of the Company. For the years ended
December 31, 2008, 2007 and 2006 there were no discretionary contributions. Effective February 1, 2009, in
light of the unfavorable economic conditions, the 401(k) Plan was amended to suspend the Company’s obligation
to match employee contributions for 2009.
The Company also has an unfunded, nonqualified deferred compensation plan. The plan allows officers,
certain other employees and directors of the Company to defer all or part of their compensation to be paid to the
participants or their designated beneficiaries upon retirement, death or separation from the Company. To support
the deferred compensation plan, the Company has elected to purchase Company-owned life insurance. The cash
surrender value of the Company-owned insurance related to deferred compensation is included in other long-term
assets and was $7,178,000 and $9,103,000 at December 31, 2008 and 2007, respectively. The liability for the
deferred compensation is included in long-term liabilities and was $6,438,000 and $7,790,000 at December 31,
2008, and 2007, respectively. For the years ended December 31, 2008 and 2007, the total participant deferrals
were $1,346,000 and $1,609,000, respectively.
F-26