Callaway 2006 Annual Report Download - page 91

CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. Options with an exercise price in excess of
the average market value of the Company’s Common Stock during the period have been excluded from the
calculation as their effect would be antidilutive. Additionally, potentially dilutive securities are excluded from the
computation of earnings per share in periods in which a net loss is reported as their effect would be antidilutive.
Thus, weighted-average shares outstanding—Diluted is the same as weighted-average shares outstanding—Basic
in periods when a net loss is reported. For the years ended December 31, 2006 and 2005, options outstanding
totaling approximately 6,447,000 and 7,816,000 shares, respectively, were excluded from the calculations of
earnings per common share, as their effect would have been antidilutive.
Note 11. Capital Stock
Common Stock and Preferred Stock
The Company has an authorized capital of 243,000,000 shares, $0.01 par value, of which 240,000,000
shares are designated 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. 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 shareholders. 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 holders 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 election of directors are entitled to vote cumulatively for one
or more nominees.
Treasury Stock
In November 2005, the Company announced that its Board of Directors authorized it to repurchase shares of
its Common Stock in the open market or in private transactions, subject to the Company’s assessment of market
conditions and buying opportunities, up to a maximum cost to the Company of $50,000,000. In June 2006, the
Company announced that the Board of Directors authorized a new $50,000,000 stock repurchase program, which
remains in effect until completed or otherwise terminated by the Board of Directors. The combined November
2005 and June 2006 stock repurchase programs supersede all prior stock repurchase authorizations. During 2006,
the Company repurchased 3,457,000 shares of its Common Stock at an average cost per share of $15.29. As of
December 31, 2006, the Company completed the November 2005 repurchase program and is authorized to
repurchase up to $47,127,000 of its Common Stock under the June 2006 repurchase program.
During 2006, the Company reacquired 10,500 shares of its Common Stock at an average cost per share of
$12.86 through the withholding of shares in satisfaction of employee tax obligations related to the vesting of
Restricted Stock awards. There were no share repurchases during the fourth quarter of 2006. The Company’s
repurchases of shares of Common Stock are recorded at the weighted average cost of the Common Stock held in
treasury and result in a reduction of shareholder’s 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 nonqualified or
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