Callaway 2015 Annual Report Download - page 42

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Information regarding income taxes is contained in Note 9 “Income Taxes” in the Notes to Consolidated Financial
Statements in this Form 10-K.
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.
Performance share units are stock-based awards in which the number of shares ultimately received depends on the
Company's performance against specified goals that are measured over a designated performance period from the date of
grant. These performance goals are established by the Company at the beginning of the performance period. At the end of the
performance period, the number of shares of stock that could be issued is fixed based upon the degree of achievement of the
performance goals. The number of shares that could be issued can range from 50% to 150% of the participant's target award.
Performance share units are initially valued at the Company's closing stock price on the date of grant. Compensation expense
for performance share units is recognized over the vesting period and is reduced by an estimate for forfeitures, and will vary
based on remeasurements during the performance period. If the performance goals are not probable of achievement during
the performance period, compensation expense would be reversed. The awards are forfeited if the performance goals are not
achieved as of the end of the performance period. The performance units vest in full at the end of a three year period.
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 an 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 underlying the
award. Compensation expense is recognized on a straight-line basis over the vesting period, reduced by an estimated forfeiture
rate.
Phantom stock units are a form of share-based awards that are indexed to the Company’s stock and are settled in cash.
Compensation expense for Phantom Stock Units 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.
Foreign Currency Translation
A significant portion of the Company’s business is conducted outside of the United States in currencies other than the
U.S. dollar. As a result, changes in foreign currency exchange rates can have a significant effect on the Company’s financial
results. Revenues and expenses that are denominated in foreign currencies are translated using the average exchange rate for
the period. Assets and liabilities are translated at the rate of exchange on the balance sheet date. Gains and losses from assets
and liabilities denominated in a currency other than the functional currency of the entity on which they reside are generally
recognized currently in the Company's statements of operations. Gains and losses from translation of foreign subsidiary
financial statements into U.S. dollars are included in accumulated other comprehensive income or loss.
As part of the Company's overall strategy to manage its level of exposure to the risk of fluctuations in foreign currency
exchange rates, the Company enters into foreign currency forward contracts. While these foreign currency forward contracts