Callaway 2008 Annual Report Download - page 94

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operating results arising from foreign exchange rate movements, which may include derivatives that do not meet
the criteria for hedge accounting. The Company does not enter into foreign exchange contracts for speculative
purposes. Hedging contracts mature within twelve months from their inception.
At December 31, 2008, 2007 and 2006, the notional amounts of the Company’s foreign exchange contracts
used to hedge outstanding balance sheet exposures were approximately $23,742,000, $31,095,000 and
$32,470,000, respectively. The Company estimates the fair values of derivatives based on quoted market prices
or pricing models using current market rates, and records all derivatives on the balance sheet at fair value with
changes in fair value recorded in the statement of operations. At December 31, 2008 and 2007, the fair values of
foreign currency-related derivatives were recorded as current liabilities of $2,007,000 and $421,000,
respectively. The gains and losses on foreign currency contracts used to manage balance sheet exposures are
recognized as a component of other income (expense) in the same year as the remeasurement gain and loss of the
related foreign currency denominated assets and liabilities and thus generally offset these gains and losses.
During the years ended December 31, 2008, 2007 and 2006, the Company recorded net losses of $3,251,000,
$5,979,000 and $2,064,000, respectively, due to net realized and unrealized losses on contracts used to manage
balance sheet exposures that do not qualify for hedge accounting. These net realized and unrealized contractual
losses are used by the Company to offset actual foreign currency transactional net gains of $3,770,000,
$6,137,000 and $2,315,000 as of December 31, 2008, 2007 and 2006, respectively. At December 31, 2008, 2007
and 2006, there were no foreign exchange contracts designated as cash flow hedges.
Note 10. 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, restricted
stock units and performance share units to employees and non-employees (see Note 12). Dilutive securities
related to the Company’s stock option plans are included in the calculation of diluted earnings per common share
using the treasury stock method. 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, 2008, 2007 and 2006.
Year Ended December 31,
2008 2007 2006
(In thousands, except per share data)
Net income ............................................. $66,176 $54,587 $23,290
Weighted-average shares outstanding:
Weighted-average shares outstanding—Basic .............. 63,055 66,371 67,732
Dilutive securities .................................... 743 1,113 771
Weighted-average shares outstanding—Diluted ................ 63,798 67,484 68,503
Earnings per common share:
Basic .............................................. $ 1.05 $ 0.82 $ 0.34
Diluted ............................................ $ 1.04 $ 0.81 $ 0.34
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
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