Callaway 2012 Annual Report Download - page 108

based compensation expense by an estimated forfeiture rate. The forfeiture rate used by the Company is based on
historical forfeiture trends. If actual forfeiture rates are not consistent with the Company’s estimates, the
Company may be required to increase or decrease compensation expenses in future periods.
The Company uses the alternative transition method for calculating the tax effects of share-based
compensation pursuant to ASC Topic 718. The alternative transition method includes simplified methods to
establish the beginning balance of the additional paid-in capital pool (“APIC Pool”) related to the tax effects of
employee share-based compensation, and to determine the subsequent impact on the APIC Pool and consolidated
statements of cash flows of the tax effects of employee and director share-based awards that were outstanding
upon adoption of ASC Topic 718.
Stock Plans
As of December 31, 2012, the Company had one shareholder approved stock plan, the Callaway Golf
Company Amended and Restated 2004 Incentive Plan (the “2004 Plan”), under which shares were available for
equity-based awards. The 2004 Plan permits the granting of stock options, stock appreciation rights, restricted
stock, restricted stock units, phantom stock units and other equity-based awards to the Company’s officers,
employees, consultants and certain other non-employees who provide services to the Company. All grants under
the 2004 Plan are discretionary, although no participant may receive awards in any one year in excess of
2,000,000 shares. The maximum number of shares issuable over the term of the 2004 Plan is 17,500,000.
The following table presents shares authorized, available for future grant and outstanding under each of the
Company’s plans as of December 31, 2012:
Authorized Available Outstanding
(In thousands)
1995 Employee Stock Incentive Plan ................................ 10,800 — 479
1996 Stock Option Plan ........................................... 9,000 — 247
2001 Directors Plan .............................................. 500 10
(1) 258
2004 Plan ...................................................... 17,500 4,784 4,836
Total .......................................................... 37,800 4,794 5,820
(1) 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 $1,586,000,
$3,306,000 and $3,606,000 of compensation expense relating to outstanding stock options for the years ended
December 31, 2012, 2011 and 2010, 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 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, 2012, 2011 and 2010, the
weighted average estimated forfeiture rate used was 5.7%, 4.5% and 3.5%, respectively. The table below
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