Callaway 2001 Annual Report Download - page 52

Callaway Golf Company
50
NOTE 8
Stock, Stock Options and Rights
Common Stock and Preferred Stock The Company has an authorized capital
of 243,000,000 shares, $.01 par value, of which 240,000,000 shares are desig-
nated Common Stock, and 3,000,000 shares are designated Preferred Stock. Of
the Preferred Stock, 240,000 shares are designated Series A Junior Participating
Preferred Stock in connection with the Company’s shareholders’ rights plan
(see Shareholders’Rights Plan below). The remaining shares of Preferred Stock
are undesignated as to series, rights, preferences, privileges or restrictions.
The holders of Common Stock are entitled to one vote for each share of
Common Stock on all matters submitted to a vote of the Company’s share-
holders. Although to date no shares of Series A Junior Participating Preferred
Stock have been issued, if such shares were issued, each share of Series A Junior
Participating Preferred Stock would entitle the holder thereof to 1,000 votes on
all matters submitted to a vote of the shareholders of the Company. The hold-
ers of Series A Junior Participating Preferred Stock and the holders of Common
Stock shall generally vote together as one class on all matters submitted to a
vote of the Company’s shareholders. Shareholders entitled to vote for the elec-
tion of directors are entitled to vote cumulatively for one or more nominees.
Treasury Stock In May 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 condi-
tions 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 and during the second quarter of 2001 completed the program which
resulted in the repurchase of a total of 5,837,000 of the Company’s Common
Stock at an average cost of $17.13 per share for a total of $100,000,000.
In August 2001, the Company announced that its Board of Directors author-
ized 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. During the second half of 2001, the Company
repurchased 4,979,000 shares of its Common Stock at an average cost of
$16.98 per share for a total of $84,518,000.
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. For the years ended December 31, 2001 and 2000, the Company repur-
chased 6,001,000 shares of Common Stock at an average cost of $17.34 and
4,815,000 shares of Common Stock at an average cost of $16.71, respectively.
In July 2001, the Company issued 5,837,000 shares of Common Stock held in
treasury to the Callaway Golf Grantor Stock Trust in exchange for a promis-
sory note in the amount of 90,282,000. The sale of these shares had no net
impact on shareholders’ equity.
Grantor Stock Trust In July 1995, the Company established the Callaway Golf
Company Grantor Stock Trust (the “GST”) for the purpose of funding the
Company’s obligations with respect to one or more of the Company’s non-
qualified or qualified employee benefit plans. The GST shares are used prima-
rily for the settlement of employee stock option exercises and employee stock
plan purchases. The existence of the GST will have no impact upon the
amount of benefits or compensation that will be paid under the Company’s
employee benefit plans. The GST acquires, holds and distributes shares of the
Company’s Common Stock in accordance with the terms of the trust. Shares
held by the GST are voted in accordance with voting directions from eligible
employees of the Company as specified in the GST.
In conjunction with the formation of the GST, the Company issued 4,000,000
shares of newly issued Common Stock to the GST in exchange for a promis-
sory note in the amount of $60,575,000 ($15.14 per share). In December 1995,
the Company issued an additional 1,300,000 shares of newly issued Common
Stock to the GST in exchange for a promissory note in the amount of
$26,263,000 ($20.20 per share). In July 2001, the Company issued 5,837,000
shares of Common Stock held in treasury to the GST in exchange for a prom-
issory note in the amount of $90,282,000 ($15.47 per share). The issuance of
these shares to the GST had no net impact on shareholders’ equity.
For financial reporting purposes, the GST is consolidated with the Company.
The value of shares owned by the GST are accounted for as a reduction to
shareholders’ equity until used in connection with the settlement of employ-
ee stock purchases. Each period, the shares owned by the GST are valued at
the closing market price, with corresponding changes in the GST balance
reflected in paid-in capital. The issuance of shares by the GST is accounted
for by reducing the GST and paid-in capital accounts proportionately as the
shares are released. The GST does not impact the determination or amount
of compensation expense for the benefit plans being settled. For the year
ended December 31, 2001, 150,000 shares and 223,000 shares were released
from the GST in connection with the settlement of employee stock option
exercises and employee stock plan purchases, respectively, and no shares were
released during the years ended December 31, 2000 and 1999.
Options The Company had the following fixed stock option plans, under
which shares were available for grant at December 31, 2001: the 1995
Employee Stock Incentive Plan (the “1995 Plan”), the 1996 Stock Option Plan
(the “1996 Plan”), the 1998 Stock Incentive Plan (the “1998 Plan”), the
Promotion, Marketing and Endorsement Stock Incentive Plan (the
“Promotion Plan”) and the 2001 Non-Employee Directors Stock Option Plan
(the “2001 Directors Plan”).
The 1996 Plan and the 1998 Plan permit the granting of options or other stock
awards to the Company’s officers, employees and consultants. Under the 1996
Plan and the 1998 Plan, options may not be granted at option prices that are less
than fair market value at the date of grant. The 1995 Plan permits the granting
of options or other stock awards to only non-executive officer employees and
consultants of the Company at option prices that may be less than market value
at the date of grant. The 1995 Plan was amended in 2001 and the 1996 Plan was
amended in 2000 to increase the maximum number of shares of Common
Stock to be issued upon exercise of an option to 10,800,000 and 9,000,000
shares, respectively.
During 1996 and 1995, the Company granted options to purchase shares to
two key officers, under separate plans, in conjunction with terms of their ini-
tial employment (the “Key Officer Plans”). No shares are available for grant
under the Key Officer Plans as of December 31, 2001.
Under the Promotion Plan, shares of Common Stock may be granted in the
form of options or other stock awards to golf professionals and other
endorsers at prices that may be less than the market value of the stock at the
grant date. The 2001 Directors Plan permits the granting of options to pur-
chase shares of Common Stock to Directors of the Company who are not
employees, at prices based on the market value of the stock at the date of grant.