Callaway 2010 Annual Report Download - page 90

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.
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.
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.
Income Taxes
Current income tax expense or benefit is the amount of income taxes expected to be payable or receivable
for the current year. A deferred income tax asset or liability is established for the difference between the tax basis
of an asset or liability computed pursuant to ASC Topic 740 and its reported amount in the financial statements
that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability
is recovered or settled, respectively. The Company provides a valuation allowance for its deferred tax assets
when, in the opinion of management, it is more likely than not that such assets will not be realized. In evaluating
the ability to recover deferred tax assets within the jurisdiction from which they arise, the Company considers all
available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future
taxable income, ongoing prudent and feasible tax planning strategies and recent financial operations. These
assessments require significant judgment about future financial forecasts that are required to be consistent with
the plans and estimates used to manage the underlying business. In the event the Company were to determine that
it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment
to the deferred tax asset would increase income in the period such determination was made. Likewise, should the
Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be a charge to income in the period such determination was made.
Pursuant to ASC Topic 740-25-6, the Company is required to accrue for the estimated additional amount of
taxes for uncertain tax positions if it is more likely than not that the Company would be required to pay such
additional taxes. An uncertain income tax position will not be recognized if it has less than 50% likelihood of
being sustained.
The Company is required to file federal and state income tax returns in the United States and various other
income tax returns in foreign jurisdictions. The preparation of these income tax returns requires the Company to
interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of
tax paid by the Company. As required under applicable accounting rules, the Company accrues an amount for its
estimate of additional tax liability, including interest and penalties, for any uncertain tax positions taken or
expected to be taken in an income tax return. The Company reviews and updates the accrual for uncertain tax
positions as more definitive information becomes available. Historically, additional taxes paid as a result of the
resolution of the Company’s uncertain tax positions have not been materially different from the Company’s
expectations. For further information, see Note 16 “Income Taxes.”
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