Callaway 2010 Annual Report Download - page 105

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 the shares are issued. 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 issued in connection with the settlement of
restricted stock units, 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, 2010, 2009 and 2008:
Year Ended December 31,
2010 2009 2008
(In thousands)
Employee stock option exercises .......................... — — 113
Employee restricted stock units vested ...................... 283 36 —
Employee stock plan purchases ............................ 409 421 260
Total shares released from the GST .................... 692 457 373
Note 14. Share-Based Compensation
The Company accounts for its share-based compensation arrangements in accordance with 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 alternative transition method for calculating the tax effects of share-based
compensation pursuant to ASC Topic 718. The alternative transition method includes simplified methods to
establish the beginning balance of the additional paid-in capital pool (“APIC Pool”) related to the tax effects of
employee share-based compensation, and to determine the subsequent impact on the APIC Pool and consolidated
statements of cash flows of the tax effects of employee and director share-based awards that were outstanding
upon adoption of ASC Topic 718.
Stock Plans
As of December 31, 2010, the Company had the following two shareholder approved stock plans under
which shares were available for equity-based awards: the Callaway Golf Company Amended and Restated 2004
Incentive Plan (the “2004 Plan”) and the 2001 Non-Employee Directors Stock Incentive Plan (the “2001
Directors Plan”). The 2004 Plan permits the granting of stock options, stock appreciation rights, restricted stock
and restricted stock units, performance share units and other equity-based awards to the Company’s officers,
employees, consultants and certain other non-employees who provide services to the Company. All grants under
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