Callaway 2010 Annual Report Download - page 109

Units had an initial valuation of $9,050,000. As of December 31, 2010, there were 1,125,000 units outstanding
and the value of these awards increased to $9,075,000 due to an increase in the price of the Company’s common
stock. In connection with these awards, the Company recognized pre-tax charges of $3,801,000 for the twelve
months ended December 31, 2010. As of December 31, 2009, the expense related to Phantom Stock Units was
nominal.
Employee Stock Purchase Plan
Pursuant to the amended and restated Callaway Golf Employee Stock Purchase Plan (the “Plan”),
participating employees authorize the Company to withhold compensation and to use the withheld amounts to
purchase shares of the Company’s common stock at 85% of the closing price on the last day of each six-month
offering period. During 2010, 2009 and 2008 approximately 409,000, 421,000 and 260,000 shares, respectively,
of the Company’s common stock were purchased under the Plan on behalf of participating employees. As of
December 31, 2010, there were 2,070,000 shares reserved for future issuance under the Plan. In connection with
the Plan, the Company recorded $404,000, $452,000 and $537,000 of compensation expense for the years ended
December 31, 2010, 2009 and 2008, respectively.
Share-Based Compensation Expense
The table below summarizes the amounts recognized in the financial statements for the years ended
December 31, 2010, 2009 and 2008 for share-based compensation related to employees and directors. Amounts
are in thousands, except for per share data.
2010 2009 2008
Cost of sales ........................................................ $ 938 $ 457 $ 553
Operating expenses .................................................. 12,451 8,356 7,059
Total cost of employee share-based compensation included in income, before
income tax ................................................... 13,389 8,813 7,612
Amount of income tax recognized in earnings ............................. (4,406) (2,705) (2,014)
Amount charged against net income ..................................... $ 8,983 $ 6,108 $ 5,598
Impact on net income per common share:
Basic ............................................................. $ (0.14) $ (0.10) $ (0.09)
Diluted ............................................................ $ (0.14) $ (0.10) $ (0.09)
From time to time, the Company accelerates the vesting of certain share-based awards as a result of
employee terminations. There were no material award accelerations during 2010, 2009 and 2008.
With respect to restricted stock awards granted to certain non-employees, the Company reversed expense of
$57,000 and $705,000 for the years ended December 31, 2009 and 2008, respectively, as a result of the
remeasurement of shares of Restricted Stock at market value. These Restricted Stock awards became fully vested
in October 2009.
Note 15. 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. During 2008, 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. On February 1, 2009, in light of
the unfavorable economic conditions and the Company’s efforts to reduce costs, the 401(k) Plan was amended to
suspend the Company’s obligation to match employee contributions. As of January 1, 2010, the Company
amended the Plan to reinstate the Company’s obligation to match employee contributions.
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