Callaway 2011 Annual Report Download - page 101

Stock Appreciation Rights
In 2011, the Company granted 500,000 units of cash settled stock appreciation rights (“SARs”) that vest
over one year. The Company records compensation expense for SARs based on the estimated fair value on the
date of grant using the Black Scholes option-pricing model. SARs are subsequently remeasured at each interim
reporting period based on a revised Black Scholes value until they are exercised. As of December 31, 2011, the
Company recognized $321,000 in compensation expense related to these awards with the corresponding accrual
in accrued employee compensation and benefits in the accompanying consolidated balance sheet.
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 the third quarter in 2011, in connection with the Company’s Reorganization and
Reinvestment Initiatives (see Note 3), the Company terminated the Employee Stock Purchase Plan.
In 2011, 2010 and 2009 the Company purchased approximately 376,000, 409,000 and 421,000 shares,
respectively, of common stock under the Plan on behalf of participating employees and recorded compensation
expense of $234,000, $404,000 and $452,000, respectively.
Share-Based Compensation Expense
The table below summarizes the amounts recognized in the financial statements for the years ended
December 31, 2011, 2010 and 2009 for share-based compensation related to employees and directors. Amounts
are in thousands, except for per share data.
2011 2010 2009
Cost of sales ....................................................... $ 424 $ 938 $ 457
Operating expenses .................................................. 10,882 12,451 8,356
Total cost of employee share-based compensation included in loss before income
tax ............................................................. 11,306 13,389 8,813
Income tax benefit ................................................... (4,353) (4,406) (2,705)
Amount included in net loss ........................................... $ 6,953 $ 8,983 $ 6,108
Impact on net loss per common share:
Basic ............................................................. $ (0.11) $ (0.14) $ (0.10)
Diluted ............................................................ $ (0.11) $ (0.14) $ (0.10)
In connection with an employment agreement with a former executive officer of the Company, the
Company was contractually obligated to grant $11,730,000 in the form of various share-based awards over the
service period stipulated in the agreement. As a result, the total contractual obligation related to these equity
awards was recognized on a straight-line basis over the contract term, which resulted in the recognition of
compensation expense of $1,415,000, $2,401,000 and $1,800,000 in 2011, 2010 and 2009, respectively. In 2011,
as a result of the resignation of the executive officer, the Company accelerated the vesting period of all
outstanding equity awards granted under the employment agreement, which resulted in the recognition of
additional compensation expense of $2,136,000.
In total, in connection with the Reorganization and Reinvestment Initiatives announced in June 2011 (see
Note 3), the Company recognized $3,539,000 during the year ended December 31, 2011 in stock compensation
expense as a result of the contractual acceleration of the vesting of certain stock options, restricted stock units
and phantom stock units. There were no material award accelerations during 2010 and 2009.
F-27