Note 13. Share-Based Employee Compensation

As of June 30, 2018, 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"). From time to time, the Company grants stock options, restricted stock units, performance share units, phantom stock units, stock appreciation rights and other awards under these plans.

The table below summarizes the amounts recognized in the financial statements for the three and six months ended June 30, 2018 and 2017 for share-based compensation, including expense for restricted stock units, performance share units, stock options and cash settled stock appreciation rights.



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(In thousands)
Cost of sales	$	256	$	146	$	470	$	363
Operating expenses	3,208		2,039		5,994		5,007
Total cost of share-based compensation included in income, before income tax	$	3,464	$	2,185	$	6,464	$	5,370

Restricted Stock Units

Restricted stock units awarded under the 2004 Incentive Plan and the 2013 Directors Plan are valued at the Company’s closing stock price on the date of grant. Restricted stock units generally vest over a one- to three-year period. Compensation expense for restricted stock units is recognized on a straight-line basis over the vesting period and is reduced by an estimate for forfeitures. During the three months ended June 30, 2018 and 2017, the Company granted 59,000 and 60,000 shares underlying restricted stock units, respectively, at a weighted average grant-date fair value of $17.72 and $12.04, respectively. During the six months ended June 30, 2018 and 2017, the Company granted 419,000 and 526,000 shares underlying restricted stock units, respectively, at a weighted average grant-date fair value of $15.22 and $10.35, respectively.

Total compensation expense, net of estimated forfeitures, recognized for restricted stock units during the three months ended June 30, 2018 and 2017 was $1,463,000 and $1,439,000, respectively, and $2,850,000 and $2,660,000, for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018, the Company had $12,642,000 of total unamortized compensation expense related to non-vested restricted stock units. That cost is expected to be recognized over a weighted-average period of 2.7 years.

Performance Share Units

Performance share units granted under the 2004 Incentive Plan 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 three-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. 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 three years from the date of grant.

The Company granted 307,000 and 370,000 shares underlying performance share units during the six months ended June 30, 2018 and 2017, respectively, at a weighted average grant-date fair value of $14.80 and $10.10 per share, respectively. There were no shares underlying performance share units granted during the three months ended June 30, 2018 and 2017. The awards granted during 2018, 2017 and 2016 are subject to a three-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 2017, and 80% of the target award shares granted in 2016, in each case subject to continued service through the vesting date.

During the three months ended June 30, 2018 and 2017, the Company recognized total compensation expense, net of estimated forfeitures, for performance share units of $1,995,000 and $737,000, respectively, and $3,599,000 and $2,725,000, for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018, unamortized compensation expense related to these awards was $14,087,000, which is expected to be recognized over a weighted-average period of 1.6 years.