Callaway 2013 Annual Report Download - page 105

F-35
Share-Based Compensation Expense
The table below summarizes the amounts recognized in the financial statements for the years ended December 31,
2013, 2012 and 2011 for share-based compensation, including expense for stock options, restricted stock units, phantom
stock units and cash settled stock appreciation rights (in thousands):
2013 2012 2011
Cost of sales................................................................................................................... $ 473 $ 276 $ 424
Operating expenses........................................................................................................ 7,711 6,874 10,882
Total cost of employee share-based compensation included in loss before income tax $ 8,184 $ 7,150 $11,306
In 2010, 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 in
2011. Also 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 connection with the Cost Reduction Initiatives announced in July 2012 (see Note 3), the Company recognized
$416,000 during the year ended December 31, 2012 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. 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.
Note 16. Employee Benefit Plans
The Company has a voluntary deferred compensation plan under Section 401(k) of the Internal Revenue Code (the
“401(k) Plan”) for all employees who satisfy the age and service requirements under the 401(k) Plan. Each participant
may elect to contribute up to 75% of annual compensation, up to the maximum permitted under federal law. In 2013 and
2012, the Company matched amounts equal to 50% of the participant’s contributions up to 6% of their eligible annual
compensation. In 2011, the Company matched an amount equal to 100% of the participant’s contributions up to 6% of
their eligible annual compensation.
The portion of the participant’s account attributable to elective deferral contributions and rollover contributions are
100% vested and nonforfeitable. Participants vest in employer matching and profit sharing contributions at a rate of
50% per year, becoming fully vested after the completion of two years of service. In accordance with the provisions of
the 401(k) Plan, the Company matched employee contributions in the amount of $1,589,000, $2,156,000 and $5,061,000
during 2013, 2012 and 2011, respectively. Additionally, the Company can make discretionary contributions based on the
profitability of the Company. For the years ended December 31, 2013, 2012 and 2011 there were no discretionary
contributions.
Note 17. Fair Value Measurements
Certain of the Company’s financial assets and liabilities are measured at fair value on a recurring and nonrecurring
basis. Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability (the
exit price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market
participants. Assets and liabilities carried at fair value are classified using the following three-tier hierarchy:
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments
in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are
observable in active markets; and
Level 3: Fair value measurements derived from valuation techniques in which one or more significant inputs or
significant value drivers are unobservable.