Callaway 2009 Annual Report Download - page 88

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Investments
The Company determines the appropriate classification of its investments at the time of acquisition and
reevaluates such determination at each balance sheet date. Trading securities are carried at quoted fair value, with
unrealized gains and losses included in earnings. Available-for-sale securities are carried at quoted fair value,
with unrealized gains and losses reported in shareholders’ equity as a component of accumulated other
comprehensive income (loss). Other investments that do not have readily determinable fair values are stated at
cost and are reported in other assets. Realized gains and losses are determined using the specific identification
method and are included in interest and other income, net.
The Company monitors investments for impairment in accordance with ASC Topic 325-35-2, “Impairment”
and ASC Topic 320-35-17 through 35-35, “Scope of Impairment Guidance.” See Note 4 for further discussion of
the Company’s investments.
Share-Based Compensation
The Company accounts for its share-based compensation arrangements in accordance with ASC Topic 718,
“Compensation—Stock Compensation” (“ASC Topic 718”),” which requires the measurement and recognition
of compensation expense for all share-based payment awards to employees and directors based on estimated fair
values. ASC Topic 718 further requires a reduction in share-based compensation expense by an estimated
forfeiture rate. The forfeiture rate used by the Company is based on historical forfeiture trends. If actual
forfeiture rates are not consistent with the Company’s estimates, the Company may be required to increase or
decrease compensation expenses in future periods.
The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options
at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to
calculate the value of stock options. The Company uses historical data among other information to estimate the
expected price volatility, option life, dividend yield and forfeiture rate. The risk-free rate is based on the U.S.
Treasury yield curve in effect at the time of grant for the estimated life of the option. The total compensation is
recognized on a straight-line basis over the vesting period, reduced by an estimated forfeiture rate. Estimated
forfeiture rates are updated as actual cancellations occur.
The Company records compensation expense for Restricted Stock Awards and Restricted Stock Units
(collectively “restricted stock”) based on the estimated fair value of the award on the date of grant. The estimated
fair value is determined based on the closing price of the Company’s common stock on the award date multiplied
by the number of shares underlying the restricted stock awarded. Total compensation expense is recognized on a
straight-line basis over the vesting period, reduced by an estimated forfeiture rate.
Phantom Stock Units are a form of share-based awards that are indexed to the Company’s stock and are
settled in cash. They are accounted for as liabilities, which are initially measured based on the estimated fair
value of the awards on the date of grant. The estimated fair value is determined based on the closing price of the
Company’s common stock on the award date multiplied by the number of shares underlying the phantom stock
awarded. The liabilities are subsequently remeasured based on the fair value of the awards at the end of each
interim reporting period through the settlement date of the awards. Total compensation expense is recognized on
a straight-line basis over the vesting period, reduced by an estimated forfeiture rate.
From time to time the Company may grant Performance Share Units to certain employees, which are a form
of share-based award in which the number of shares ultimately received depends on the Company’s performance
against specified performance targets over a three-year period from the date of grant. The estimated fair value of
the Performance Share Units is determined based on the closing price of the Company’s common stock on the
award date multiplied by the estimated number of shares to be issued at the end of the performance period. Total
F-12