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Share-Based Employee Compensation | 12 Months Ended
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Dec. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] |
Share-Based Employee Compensation | Note 15. Share-Based Employee Compensation The Company accounts for its share-based compensation arrangements in accordance with ASC Topic 718, which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values, and ASU No. 2014-12 for stock awards that are subject to performance measures. 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 forfeiture rates are not consistent with the Company’s estimates, the Company may be required to increase or decrease compensation expenses in future periods. Stock Plans As of December 31, 2019, the Company had two shareholder approved stock plans under which shares were available for equity-based awards: the Callaway Golf Company Amended and Restated 2004 Incentive Plan (the "2004 Incentive Plan") and the 2013 Non-Employee Directors Stock Incentive Plan (the "2013 Directors Plan"). The 2004 Incentive Plan permits the granting of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance share 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 Incentive 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 Incentive Plan is 33,000,000. The 2013 Directors Plan permits the granting of stock options, restricted stock awards and restricted stock units to eligible directors serving on the Company's Board of Directors. The Directors may receive a one-time grant upon their initial appointment to the Board and thereafter an annual grant upon being re-elected at each annual meeting of shareholders, not to exceed 50,000 shares within any calendar year. The maximum number of shares issuable over the term of the 2013 Directors Plan is 1,000,000. The following table presents shares authorized, available for future grant and outstanding under each of the Company’s plans as of December 31, 2019:
| Authorized |  | Available |  | Outstanding(1)
| (In thousands)
2004 Incentive Plan | 33,000 |  |  | 9,003 |  |  | 2,671 |
2013 Directors Plan | 1,000 |  |  | 640 |  |  | 56 |
Total | 34,000 |  |  | 9,643 |  |  | 2,727 |
(1) | Includes 4,000 shares of accrued incremental dividend equivalent rights on outstanding shares underlying restricted stock units granted under the 2004 Incentive Plan and 2013 Directors Plan.
Stock Options All stock option grants made under the 2004 Incentive 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 $14,000 and $34,000 of compensation expense relating to outstanding stock options for the years ended December 31, 2018 and 2017, respectively. All outstanding stock options were fully vested as of December 31, 2018, therefore, the Company did not record compensation expense related to stock options in 2019. The Company recorded 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 was recognized over the vesting term and was reduced by an estimate for forfeitures, which was based on the Company’s historical forfeitures of unvested options and awards. The Company did not grant stock options during the years ended December 31, 2019, 2018 and 2017. The weighted average estimated forfeiture rate that was used in both years ended December 31, 2018 and 2017 was 1.7%. The following table summarizes the Company’s stock option activities for the year ended December 31, 2019 (in thousands, except price per share and contractual term):
Options | Number of Shares |  | Weighted- Average Exercise Price Per Share |  | Weighted- Average Remaining Contractual Term |  | Aggregate Intrinsic Value
Outstanding at January 1, 2019 | 691 |  |  | $ | 6.54 |  |  |  |  |
Granted | — |  |  | $ | — |  |  |  |  |
Exercised | (56 | ) |  | $ | 6.60 |  |  |  |  |
Forfeited | — |  |  | $ | — |  |  |  |  |
Expired | — |  |  | $ | — |  |  |  |  |
Outstanding at December 31, 2019 | 635 |  |  | $ | 6.53 |  |  | 3.07 |  | $ | 9,313 |
Vested and expected to vest in the future at December 31, 2019 | 635 |  |  | $ | 6.53 |  |  | 3.07 |  | $ | 9,313 |
Exercisable at December 31, 2019 | 635 |  |  | $ | 6.53 |  |  | 3.07 |  | $ | 9,313 |
At December 31, 2019, there was no unrecognized compensation expense related to options granted to employees under the Company’s share-based payment plans. The total intrinsic value for options exercised during the years ended December 31, 2019, 2018 and 2017 was $792,000, $2,621,000 and $3,546,000, respectively. Cash received from the exercise of stock options for the years ended December 31, 2019, 2018 and 2017 was $368,000, $1,636,000 and $5,362,000, respectively. Restricted Stock Units Restricted stock units awarded under the 2004 Incentive Plan and the 2013 Directors Plan are recorded at the Company’s closing stock price on the date of grant. Restricted stock units generally vest over a one- to five-year period. During the years ended December 31, 2019, 2018 and 2017, the weighted average grant-date fair value of restricted stock units granted was $15.63, $15.30 and $9.36, respectively. The Company recorded $6,098,000, $5,949,000 and $5,537,000 of compensation expense related to restricted stock units in 2019, 2018 and 2017, respectively. The table below is a roll-forward of the activity for restricted stock units during the 12 months ended December 31, 2019 (in thousands, except fair value amounts):
Restricted Stock Units | Units |  | Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2019 | 1,239 |  |  | $ | 12.16 |
Granted | 479 |  |  | 15.63 |
Vested | (543 | ) |  | 11.53 |
Forfeited | (139 | ) |  | 12.56 |
Nonvested at December 31, 2019(1) | 1,036 |  |  | $ | 14.04 |
(1) | Excludes 4,000 shares of accrued incremental dividend equivalent rights on outstanding shares underlying restricted stock units granted under the 2004 Incentive Plan and 2013 Directors Plan.
At December 31, 2019, there was $9,674,000 of total unrecognized compensation expense related to nonvested restricted stock units granted to employees under the Company’s share-based payment plans. That cost is expected to be recognized over a weighted-average period of 1.8 years. Performance Based Awards Performance based awards are stock-based awards in which the number of shares ultimately received depends on the Company's performance against specified metrics over a one- to five-year performance period from the date of grant. These performance metrics 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 0% to 200% of the participant's target award. The Company grants two types of performance based awards: performance share units and awards subject to total shareholder return metrics under the 2004 Incentive Plan. Performance share units are initially valued at the Company's closing stock price on the date of grant. Stock compensation expense, net of estimated forfeitures, is recognized on a straight-line basis over the vesting period. The expense recognized over the vesting period is adjusted up or down based on the anticipated performance level during the performance period. If the performance metrics are not probable of achievement during the performance period, compensation expense would be reversed. The awards are forfeited if the threshold performance metrics are not achieved as of the end of the performance period. The performance share units cliff-vest in full over a period of three to five years from the date of grant. Performance share units with total shareholder return requirements are awards that compare the performance of the Company's common stock over a three-year period to that of the Company's peer group. The fair value of these awards is derived using the Monte Carlo simulation which utilizes the stock volatility, dividend yield and market correlation of the Company and the Company's peer group. The Monte Carlo fair value is expensed on a straight-line basis over the vesting period, net of estimated forfeitures. The awards are forfeited if the threshold performance metrics are not achieved as of the end of the performance period. The performance share units cliff-vest in full over a three-year vesting period. The Company granted 226,000, 307,000 and 462,000 performance share units during the years ended December 31, 2019, 2018 and 2017, respectively, at a weighted average grant-date fair value of $15.17, $14.80 and $10.68 per share, respectively. The awards granted during 2019 and 2018 are subject to a three- to five-year performance period provided that (i) if certain first year performance goals are achieved, the participant could earn up to 50% of the three-year target award shares, subject to continued service through the vesting date, and (ii) if certain cumulative first- and second-year performance goals are achieved, the participant could earn up to an aggregate of 80% of the three-year target award shares (which includes any shares earned during the first year), subject to continued service through the vesting date. Based on the Company’s performance, participants earned a minimum of 50% of the target award shares granted in 2018, and 80% of the target award shares granted in 2017, in each case subject to continued service through the vesting date. During year ended December 31, 2019, the Company granted 149,000 shares underlying performance share units subject to total shareholder return requirements at a weighted average grant-date fair value of $16.96 per share. There were no performance share units with total shareholder return requirements granted in 2018 that were subject to total shareholder return requirements. During the years ended December 31, 2019, 2018 and 2017, the Company recognized total compensation expense, net of estimated forfeitures, of $6,796,000, $7,567,000 and $7,075,000, respectively, related to performance share units. At December 31, 2019, the unamortized compensation expense related to these awards was $8,483,000, which is expected to be recognized over a weighted-average period of 1.3 years. The table below is a roll-forward of the activity for performance share units during the 12 months ended December 31, 2019 (in thousands, except fair value amounts):
Performance Share Units | Units |  | Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2019 | 1,119 |  |  | $ | 11.10 |
Granted | 375 |  |  | 15.88 |
Target Award Adjustment(1) | 383 |  |  | 8.61 |
Vested | (774 | ) |  | 8.66 |
Forfeited | (52 | ) |  | 15.28 |
Nonvested at December 31, 2019 | 1,051 |  |  | $ | 13.50 |
(1) | Represents shares earned by participants at 200.0% for awards granted in 2016.
Stock Appreciation Rights There were no stock appreciation rights outstanding as of December 31, 2019, 2018 and 2017. The Company reversed $32,000 of compensation expense during the year ended December 31, 2017 related to previously granted awards.
Share-Based Compensation Expense The table below summarizes the amounts recognized in the financial statements for the years ended December 31, 2019, 2018 and 2017 for share-based compensation, including expense for restricted stock units, performance share units, stock options and cash settled stock appreciation rights (in thousands):
| 2019 |  | 2018 |  | 2017
Cost of sales | $ | 961 |  |  | $ | 976 |  |  | $ | 907 |
Operating expenses | 11,935 |  |  | 12,554 |  |  | 11,708 |
Total cost of employee share-based compensation included in income before income tax | $ | 12,896 |  |  | $ | 13,530 |  |  | $ | 12,615 |

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -URI http://asc.fasb.org/subtopic&trid=2208855 + Details
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