Callaway 2010 Annual Report Download - page 106

the 2004 Plan are discretionary, although no participant may receive awards in any one year in excess of
2,000,000 shares. The 2001 Directors Plan permits the granting of stock options, restricted stock and restricted
stock units. Directors receive an initial equity award grant not to exceed 20,000 shares upon their initial
appointment to the Board and thereafter an annual grant not to exceed 10,000 shares upon being re-elected at
each annual meeting of shareholders. The maximum number of shares issuable over the term of the 2004 Plan
and the 2001 Directors Plan is 17,500,000 and 500,000 shares, respectively.
The following table presents shares authorized, available for future grant and outstanding under each of the
Company’s plans as of December 31, 2010:
Authorized Available Outstanding
(In thousands)
1991 Stock Incentive Plan ......................................... 10,000 — 25
Promotion, Marketing and Endorsement Stock Incentive Plan ............. 3,560 — 450
1995 Employee Stock Incentive Plan ................................ 10,800 — 1,679
1996 Stock Option Plan ........................................... 9,000 — 422
2001 Directors Plan .............................................. 500 118 329
2004 Plan ...................................................... 17,500 2,691 8,097
Employee Stock Purchase Plan ..................................... 6,000 2,070 —
Total .......................................................... 57,360 4,879 11,002
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 $3,606,000, $3,384,000 and $3,351,000 of compensation expense relating to outstanding stock options
for the years ended December 31, 2010, 2009 and 2008, 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, 2010, 2009
and 2008, the average estimated pre-vesting forfeiture rate used was 3.5%, 4.4% and 4.8%, respectively. The
table below summarizes the average fair value assumptions used in the valuation of stock options granted during
the years ended December 31, 2010, 2009 and 2008.
2010 2009 2008
Dividend yield ................................................... 1.1% 1.9% 1.9%
Expected volatility ................................................ 46.2% 42.7% 35.6%
Risk-free interest rate .............................................. 2.2% 1.4% 2.7%
Expected life .................................................... 4.7years 4.1 years 4.1 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
F-28