Callaway 2007 Annual Report Download - page 89

Note 9. Earnings per Common Share
Basic earnings per common share is calculated by dividing net income for the period by the weighted-
average number of common shares outstanding during the period. Diluted earnings per common share is
calculated by dividing net income for the period by the sum of the weighted-average number of common shares
outstanding during the period, plus the number of potentially dilutive common shares (“dilutive securities”) that
were outstanding during the period. Dilutive securities include options granted pursuant to the Company’s stock
option plans, potential shares related to the Employee Stock Purchase Plan and Restricted Stock grants to
employees and non-employees (see Note 11). Dilutive securities related to the Callaway Golf Company Grantor
Stock Trust and the Company’s stock option plans are included in the calculation of diluted earnings per common
share using the treasury stock method. Under the treasury stock method, the dilutive securities related to the
Callaway Golf Company Grantor Stock Trust do not have any impact upon the diluted earnings per common
share. Dilutive securities related to the Employee Stock Purchase Plan are calculated by dividing the average
withholdings during the period by 85% of the market value at the end of the period.
The schedule below summarizes the elements included in the calculation of basic and diluted earnings per
common share for the years ended December 31, 2007, 2006 and 2005.
Year Ended December 31,
2007 2006 2005
(In thousands, except per share data)
Net income ............................................. $54,587 $23,290 $13,284
Weighted-average shares outstanding:
Weighted-average shares outstanding—Basic .............. 66,371 67,732 68,646
Dilutive securities .................................... 1,113 771 593
Weighted-average shares outstanding—Diluted ................ 67,484 68,503 69,239
Earnings per common share:
Basic .............................................. $ 0.82 $ 0. 34 $ 0.19
Diluted ............................................ $ 0.81 $ 0.34 $ 0.19
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, 2007, 2006 and 2005, options
outstanding totaling approximately 2,856,000, 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 10. 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
F-19