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Stock Plans and Share-Based Compensation | 12 Months Ended
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Dec. 31, 2021
Share-based Payment Arrangement [Abstract] |
Stock Plans and Share-Based Compensation | Note 17. Stock Plans and Share-Based Compensation Stock Plans As of December 31, 2021, 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 Company also had one non-shareholder approved stock plan, the 2021 Employment Inducement Plan (the "2021 Inducement Plan"), which was adopted in connection with the Company's merger with Topgolf on March 8, 2021. The 2021 Inducement Plan has substantially the same terms as the Company's 2004 Incentive Plan, with the exception that awards can only be made to new employees in connection with their commencement of employment and incentive stock options cannot be granted under the 2021 Inducement Plan. In general, the Company grants stock options, restricted stock units, performance based awards, phantom stock units and other awards under these plans. 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. 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 2021 Inducement Plan was adopted in connection with the Company's merger with Topgolf on March 8, 2021. The 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. The maximum number of shares issuable over the term of the 2021 Inducement Plan is 1,300,000. Topgolf Replacement Awards & Equity Compensation Plans In connection with the merger with Topgolf which was completed on March 8, 2021, the Company converted certain stock options previously held by former equity holders of Topgolf into options to purchase a number of shares of Callaway common stock, and certain outstanding restricted stock awards of Topgolf into shares of Callaway common stock (together, the "replacement awards"). The Company also assumed two equity compensation plans and a stock option agreement between Topgolf and a third party in connection with the merger (collectively, the "Topgolf Equity Compensation Plans and Option Agreement"). No additional awards may be granted by the Company under the assumed Topgolf Equity Plans and Option Agreement. Additionally, the Company included $33,051,000 in the consideration transferred for the replacement awards issued connection with the merger, which represents the fair value of the vested portion of the replacement awards. As of the year ended December 31, 2021, the unvested portion of the replacement awards, which is associated with the future services that will be rendered in the post-combination period, is comprised of 3,168,000 shares underlying stock options with an acquisition date fair value of $5,343,000, and 188,000 shares of restricted stock awards with an acquisition date fair value of $4,794,000. All activity related to share-based awards for the year December 31, 2021, includes the Replacement Awards issued in connection with the merger with Topgolf (see Note 6). The following table presents shares authorized, available for future grant and outstanding under each of the Company’s plans as of December 31, 2021:
| Authorized |  | Available |  | Outstanding(1)
| (in thousands)
2004 Incentive Plan | 33,000 |  |  | 4,736 |  |  | 2,776 |
2013 Directors Plan | 1,000 |  |  | 512 |  |  | 48 |
2021 Inducement Plan | 1,300 |  |  | 310 |  |  | 774 |
Topgolf Equity Compensation Plans and Option Agreement | — |  |  | — |  |  | 1,933 |
Total | 35,300 |  |  | 5,558 |  |  | 5,531 |
____________ (1)Includes 1,384 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 There were 3,168,000 stock options granted in 2021, which were constituted of the replacement awards issued in connection with the Company's merger with Topgolf on March 8, 2021. No stock options were granted in 2020 and 2019. As of December 31, 2021, there were 1,988,000 stock options outstanding, of which 1,552,000 were fully vested. For the year ended December 31, 2021, the Company recognized $2,625,000 in compensation expense related to stock option grants. For the years ended December 31, 2020 and 2019, the Company did not recognize any compensation expense related to stock option grants. The following table summarizes the Company’s stock option activities for the year ended December 31, 2021 (in thousands, except price per share amounts 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, 2021 |  | 598 |  |  | $ | 6.52 |  |  |  |  |
Granted |  | 3,168 |  |  | $ | 25.93 |  |  |  |  |
Exercised |  | (1,436) |  |  | $ | 15.52 |  |  |  |  |
Forfeited |  | (110) |  |  | $ | 33.42 |  |  |  |  |
Expired |  | (232) |  |  | $ | 30.93 |  |  |  |  |
Outstanding at December 31, 2021 |  | 1,988 |  |  | $ | 26.60 |  |  | 5.22 |  | $ | 7,380 |
Vested and expected to vest in the future at December 31, 2021 |  | 1,979 |  |  | $ | 26.57 |  |  | 5.21 |  | $ | 7,380 |
Exercisable at December 31, 2021 |  | 1,552 |  |  | $ | 24.81 |  |  | 4.62 |  | $ | 7,380 |
The following table summarizes information related to outstanding stock options as of December 31, 2021:
|  |  |  | Weighted Average
Range of Option Prices |  | Options Outstanding |  | Remaining Life (Years) |  | Exercise Price
$6.52 to $35.14 |  | 1,988,000 |  | 5.22 |  | $26.60
As of December 31, 2021, there was $2,088,000 unamortized compensation expense related to stock 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, 2021, 2020 and 2019 was $26,344,000, $566,000 and $792,000, respectively. Cash received from the exercise of stock options for the years ended December 31, 2021, 2020 and 2019 was $22,270,000, $248,000 and $368,000, respectively. The fair value of the stock options granted in connection with the merger was based on the Black-Scholes option-pricing model. The model uses various assumptions including an expected term, stock price volatility, risk-free interest rate, and dividend yield. Assumptions related to the expected term and stock price volatility were based on historical exercise patterns and historical fluctuations in volatility relative to the Company's stock price, respectively. Assumptions related to the risk-free interest rate and dividend yield were based on the yield-curve of a zero-coupon U.S. treasury bond on the date the grants were made with a maturity equal to the expected term of the grant, and an assumed dividend yield based on the Company's expectation to not pay dividends for the foreseeable future, respectively. The table below summarizes the range and the weighted averages of the fair value assumptions used in the Black-Scholes valuation as of March 8, 2021.
Assumptions: |  | Range |  | Weighted Averages
Expected term (in years) |  | 0.3 - 7.1 |  | 3.7
Volatility |  | 43.0% - 85.4% |  | 55.1%
Risk-free interest rate |  | 0.1% -1.3% |  | 0.6%
Dividend yield |  | — |  | —
Restricted Stock For the years ended December 31, 2021, 2020 and 2019, the weighted average grant-date fair value of restricted stock units granted was $29.60, $17.84 and $15.63, respectively. The total fair value of restricted stock units vested during the years ended December 31, 2021, 2020 and 2019 was $6,516,000, $5,959,000 and $6,263,000, respectively. The table below is a roll-forward of the activity for restricted stock units for the year ended December 31, 2021 (in thousands, except fair value amounts):
Restricted Stock Units |  | Units |  | Weighted- Average Grant-Date Fair Value
Unvested at January 1, 2021 |  | 900 |  |  | $ | 15.83 |
Granted |  | 1,154 |  |  | 29.60 |
Vested |  | (432) |  |  | 15.07 |
Forfeited |  | (41) |  |  | 27.50 |
Unvested at December 31, 2021(1) |  | 1,581 |  |  | $ | 25.79 |
____________ (1)Excludes 1,384 shares of accrued incremental dividend equivalent rights on outstanding shares underlying restricted stock units granted under the 2004 Incentive Plan and 2013 Directors Plan. The Company recognized $13,981,000, $6,417,000 and $6,098,000 of compensation expense related to restricted stock units for the years ended December 31, 2021, 2020 and 2019, respectively. The weighted average grant-date fair value of restricted stock awards granted as part of the replacement awards was $28.74. The total fair value of the restricted stock awards granted as part of the replacement awards that vested during the year ended December 31, 2021 was $847,000. The table below is a roll-forward of the activity for restricted stock awards granted as part of the replacement awards for the year ended December 31, 2021 (in thousands, except fair value amounts):
Restricted Stock Awards |  | Units |  | Weighted- Average Grant-Date Fair Value
Unvested at January 1, 2021 |  | — |  |  | $ | — |
Granted |  | 188 |  |  | 28.74 |
Vested |  | (29) |  |  | 29.52 |
Forfeited |  | (11) |  |  | 16.63 |
Unvested at December 31, 2021 |  | 148 |  |  | $ | 29.52 |
The Company recognized $2,356,000 of compensation expense related to restricted stock awards granted as part of replacement awards during the year ended December 31, 2021. For the years ended December 31, 2020 and 2019, the Company did not recognize any compensation expense related to restricted stock awards. As of December 31, 2021, there was $27,776,000 of total unamortized compensation expense related to unvested restricted stock granted to employees under the Company’s share-based payment plans, which includes $2,171,000 of unrecognized compensation expense related restricted awards granted as part of the replacement awards. The unamortized compensation expense related to restricted stock units and restricted stock replacement awards is expected to be recognized over a weighted-average period of 1.8 years and 1.6 years respectively. Performance Based Awards During the year ended December 31, 2021, the Company granted 1,129,000 shares underlying EBITDA PRSUs at a weighted average grant-date fair value of $29.38, of which 1,063,000 shares were granted in connection with the merger with Topgolf, which was completed on March 8, 2021, and had a weighted average grant-date fair value of $29.52. During the year ended December 31, 2021, the Company granted 155,000 shares underlying APTI PRSUs at a weighted average grant-date fair value of $29.56, of which 43,000 were granted in connection with the merger with Topgolf, which was completed on March 8, 2021, and had a weighted average grant-date fair value of $29.52. During the year ended December 31, 2021, the Company granted 156,000 shares underlying rTSR PRSUs at a weighted average grant-date fair value of $38.23, of which 43,000 were granted in connection with the merger with Topgolf, which was completed on March 8, 2021, and had a weighted average grant-date fair value of $37.40. During the years ended December 31, 2020, and 2019, the Company granted 125,000, and 149,000 shares underlying rTSR PRSUs at a weighted average grant-date fair value of $23.22, and $16.96, respectively. No EPS PRSUs were granted during the year ended December 31, 2021. During the years ended December 31, 2020, and 2019, the Company granted 125,000, and 226,000 shares underlying EPS PRSUs, respectively, at a weighted average grant-date fair value of $19.66, and $15.17 per share, respectively. The total fair value of all performance based awards vested during the years ended December 31, 2021, 2020 and 2019 was $8,242,000, $7,242,000 and $6,708,000, respectively. During the years ended December 31, 2021, 2020 and 2019, the Company recognized compensation expense on all PRSUs, net of estimated forfeitures, of $19,723,000, $4,511,000 and $6,796,000, respectively. At December 31, 2021, the combined unamortized compensation expense related to the EBITDA, APTI, EPS, rTSR, and merger PRSUs was $45,742,000, and is expected to be recognized over a weighted-average period of 1.9 years. The table below is a roll-forward of the activity for performance based awards during the year ended December 31, 2021 (in thousands, except fair value amounts):
Performance Share Units |  | Units |  | Weighted- Average Grant-Date Fair Value
Unvested at January 1, 2021 |  | 835 |  |  | $ | 17.08 |
Performance Share Units Granted |  | 1,440 |  |  | $ | 30.35 |
Target Award Adjustment(1) |  | 279 |  |  | $ | 14.80 |
Vested |  | (557) |  |  | $ | 14.80 |
Forfeited |  | (36) |  |  | $ | 25.77 |
Unvested at December 31, 2021 |  | 1,961 |  |  | $ | 27.00 |
____________ (1)Represents shares earned by participants at 200% for awards granted in 2018. Share-Based Compensation Expense The table below summarizes the amounts recognized in the financial statements for the years ended December 31, 2021, 2020 and 2019 for share-based compensation, including expense for restricted stock units, performance share units, stock options and cash settled stock appreciation rights (in thousands):
| Years Ended December 31,
| 2021 |  | 2020 |  | 2019
Cost of products | $ | 1,219 |  |  | $ | 763 |  |  | $ | 961 |
Selling, general and administrative expenses | 36,524 |  |  | 9,326 |  |  | 10,955 |
Research and development expenses | 942 |  |  | 838 |  |  | 980 |
Total cost of share-based compensation included in income, before income tax | 38,685 |  |  | 10,927 |  |  | 12,896 |
Income tax benefit | 8,898 |  |  | 2,513 |  |  | 2,966 |
Total cost of employee share-based compensation, after tax | $ | 29,787 |  |  | $ | 8,414 |  |  | $ | 9,930 |

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