Callaway 2000 Annual Report Download - page 39

Callaway Golf Company | 39
hedge effectiveness ratio of between 80% and 125%. Given that
both the hedged item and the hedged instrument are evaluated
using the same spot rate, the Company anticipates hedges of antic-
ipated intercompany inventory sales to be highly effective. The
effectiveness of each derivative is assessed monthly. During 2000,
a loss of $174,000, representing the ineffective portion of the
Company’s derivative instruments, was recorded in earnings.
The effective portion of the fair value of the derivatives is
deferred on the balance sheet in other comprehensive income
(“OCI”), a component of “Accumulated other comprehensive
income.” Amounts recorded in OCI will be released to earnings in
the same period that the hedged transaction will impact the
Company’s consolidated earnings. This transaction date is assumed
to occur when the underlying sale of product to a third party
occurs. At December 31, 2000, $1,599,000 of deferred net losses is
expected to be reclassified into earnings within the next 12
months. During 2000, no gains or losses were reclassified into
earnings as a result of the discontinuance of any cash flow hedges.
Note 7
TREASURY STOCK
On May 3, 2000, the Company announced that its Board of
Directors authorized it to repurchase its Common Stock in the
open market or in private transactions, subject to the Company’s
assessment of market conditions and buying opportunities from
time to time, up to a maximum cost to the Company of
$100,000,000. The Company began its repurchase program in May
2000. During 2000, the Company spent $80,469,000 to repurchase
4,815,000 shares of its Common Stock at an average cost of $16.71
per share.
The Company’s repurchases of shares of Common Stock are
recorded at average cost in “Common Stock held in treasury” and
result in a reduction of “Shareholders’ equity”. At December 31,
2000, retained earnings was restricted in the amount of
$80,469,000 million, representing the cost of 4,815,000 shares of
Common Stock held in treasury.
Note 8
GRANTOR STOCK TRUST
In July 1995, the Company established the Callaway Golf Company
Grantor Stock Trust (the “GST”). In conjunction with the forma-
tion of the GST, the Company sold 4,000,000 shares of newly
issued Common Stock to the GST at a purchase price of
$60,575,000 ($15.14 per share). In December 1995, the Company
sold an additional 1,300,000 shares of newly issued Common
Stock to the GST at a purchase price of $26,263,000 ($20.20 per
share). The sale of these shares had no net impact on sharehold-
ers’ equity. During the term of the GST, shares in the GST may be
used to fund the Company’s obligations with respect to one or
more of the Company’s non-qualified or qualified employee bene-
fit plans.
Shares owned by the GST are accounted for as a reduction to
shareholders’ equity until used in connection with employee ben-
efits. Each period, the shares owned by the GST are valued at the
closing market price, with corresponding changes in the GST bal-
ance reflected in capital in excess of par value.
Note 9
EARNINGS PER COMMON SHARE
For the years ended December 31, 2000 and 1999, 8,931,000 and 10,979,000 options, respectively, were excluded from the calculations, as
their effect would have been antidilutive. For the year ended December 31, 1998, all dilutive securities were excluded from the calculation
of diluted loss per share, as their effect would have been antidulutive.
The schedule below summarizes the elements included in the calculation of basic and diluted earnings (loss) per common share for the
years ended December 31, 2000, 1999 and 1998.
(in thousands, except per share data) Year Ended December 31,
2000 1999 1998
Net income (loss) $80,999 $55,322 $(26,564)
Weighted-average shares outstanding:
Weighted-average shares outstanding - Basic 69,946 70,397 69,463
Dilutive securities 1,466 817
Weighted-average shares outstanding - Diluted 71,412 71,214 69,463
Earnings (loss) per common share:
Basic
Income before cumulative effect of accounting change $1.17 $0.79 $(0.38)
Cumulative effect of accounting change (0.01)
$1.16 $0.79 $(0.38)
Diluted
Income before cumulative effect of accounting change $1.14 $0.78 $(0.38)
Cumulative effect of accounting change (0.01)
$1.13 $0.78 $(0.38)