Callaway 2011 Annual Report Download - page 98

The following table presents shares authorized, available for future grant and outstanding under each of the
Company’s plans as of December 31, 2011:
Authorized Available Outstanding
(In thousands)
Promotion, Marketing and Endorsement Stock Incentive Plan ............. 3,560 — 200
1995 Employee Stock Incentive Plan ................................ 10,800 — 1,038
1996 Stock Option Plan ........................................... 9,000 — 321
2001 Directors Plan .............................................. 500 92* 332
2004 Plan ...................................................... 17,500 1,650 8,656
Total .......................................................... 41,360 1,742 10,547
* The Company’s 2001 Non-Employee Directors Plan expired on December 31, 2011. The shares available
for grant under this plan are only available to satisfy incremental dividend equivalent rights for outstanding
awards.
Stock Options
All stock option grants made under the 2004 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 $3,306,000,
$3,606,000 and $3,384,000 of compensation expense relating to outstanding stock options for the years ended
December 31, 2011, 2010 and 2009, 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 on a
straight-line basis over the vesting term and is reduced by an estimate for forfeitures, which is based on the
Company’s historical forfeitures of unvested options and awards. For the years ended December 31, 2011, 2010
and 2009, the weighted average estimated forfeiture rate used was 4.5%, 3.5% and 4.4%, respectively. The table
below summarizes the average fair value assumptions used in the valuation of stock options granted during the
years ended December 31, 2011, 2010 and 2009.
2011 2010 2009
Dividend yield ................................................... 1.4% 1.1% 1.9%
Expected volatility ................................................ 48.5% 46.2% 42.7%
Risk-free interest rate .............................................. 2.0% 2.2% 1.4%
Expected life .................................................... 5.0years 4.7 years 4.1 years
The Company uses forecasted dividends to estimate the expected dividend yield as dividends paid have
decreased beginning in 2009. 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 employee exercise behavior, forfeitures,
cancellations and other factors. The valuation model applied in this calculation utilizes highly subjective
assumptions that could potentially change over time. Changes in the subjective input assumptions can materially
affect the fair value estimates of an option. Furthermore, the estimated fair value of an option does not
necessarily represent the value that will ultimately be realized by the employee holding the option.
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