Callaway 2009 Annual Report Download - page 102

The following table presents shares authorized, available for future grant and outstanding under each of the
Company’s plans as of December 31, 2009:
Authorized Available Outstanding(1)
(In thousands)
1991 Stock Incentive Plan ........................................ 10,000 — 75
Promotion, Marketing and Endorsement Stock Incentive Plan ........... 3,560 — 450
1995 Employee Stock Incentive Plan ............................... 10,800 — 1,827
1996 Stock Option Plan .......................................... 9,000 — 422
2001 Directors Plan ............................................. 500 174 294
2004 Plan ..................................................... 17,500 4,510 6,954
Employee Stock Purchase Plan .................................... 6,000 2,478 —
Non-Employee Directors Stock Option Plan ......................... 840 — 8
Total ......................................................... 58,200 7,162 10,030
(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 $3,384,000, $3,351,000 and $4,241,000 of compensation expense relating to outstanding stock options
for the years ended December 31, 2009, 2008 and 2007, respectively.
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, 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, 2009, 2008
and 2007, the average estimated pre-vesting forfeiture rate used was 4.4%, 4.8% and 3.9%, respectively. The
table below summarizes the average fair value assumptions used in the valuation of stock options granted during
the years ended December 31, 2009, 2008 and 2007.
2009 2008 2007
Dividend yield ................................................... 1.9% 1.9% 2.0%
Expected volatility ................................................ 42.7% 35.6% 37.4%
Risk-free interest rate .............................................. 1.4% 2.7% 4.7%
Expected life .................................................... 4.1years 4.1 years 3.1 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, forfeitures, cancellations and other factors. The valuation model
applied in this calculation utilizes highly subjective assumptions that could potentially change over time.
Changes in the subjective input assumptions can materially affect the fair value estimates of an option.
Furthermore, the estimated fair value of an option does not necessarily represent the value that will ultimately be
realized by the employee holding the option.
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