Callaway 2012 Annual Report Download - page 45

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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. 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.
Information regarding income taxes is contained in Note 12 “Income Taxes” to the Notes to Consolidated
Financial Statements.
Share-based Compensation
The Company accounts for share-based compensation arrangements in accordance with ASC Topic 718,
“Stock Compensation,” which requires the measurement and recognition of compensation expense for all share-
based payment awards to employees and non-employees based on estimated fair values. ASC Topic 718 further
requires a reduction in share-based compensation expense by an estimated forfeiture rate. The forfeiture rate used
by the Company is based on historical forfeiture trends. If actual forfeitures 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 Black-Scholes option valuation model to estimate the fair value of its stock options
and stock appreciation rights (“SARs”) at the date of grant. The Black-Scholes option valuation model requires
the input of highly subjective assumptions including the Company’s expected stock price volatility, the expected
dividend yield, the expected term of an option or SAR and the risk-free interest rate, which is based on the U.S.
Treasury yield curve in effect at the time of grant. The Company uses historical data to estimate the expected
price volatility and the expected term. The Company uses forecasted dividends to estimate the expected dividend
yield. Changes in subjective input assumptions can materially affect the fair value estimates of an option or SAR.
Furthermore, the estimated fair value of an option or SAR does not necessarily represent the value that will
ultimately be realized by an employee. Compensation expense is recognized on a straight-line basis over the
vesting period for stock options. Compensation expense for SARs is recognized on a straight-line basis over the
vesting period based on award’s estimated fair value, which is remeasured at the end of each reporting period.
Once vested, SARs continued to be remeasured to fair value until they are exercised.
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 date of grant
multiplied by the number of shares awarded. Compensation expense is recognized on a straight-line basis over
the vesting period, reduced by an estimated forfeiture rate.
Phantom stock units (“PSUs”) are a form of share-based awards that are indexed to the Company’s stock
and are settled in cash. Compensation expense for PSUs is recognized on a straight-line basis over the vesting
period based on the award’s estimated fair value. Fair value is remeasured at the end of each interim reporting
period through the award’s settlement date and is based on the closing price of the Company’s stock.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 2 “Significant Accounting
Policies” to the Notes to Consolidated Financial Statements, which is incorporated herein by this reference.
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