Callaway 2009 Annual Report Download - page 99

Dilutive securities include the common stock equivalents of convertible preferred stock, options granted
pursuant to the Company’s stock option plans, potential shares related to the Employee Stock Purchase Plan
(“ESPP”) and outstanding restricted stock awards and units granted to employees and non-employees (see
Note 13). Dilutive securities are included in the calculation of diluted earnings per common share using the
treasury stock method in accordance with ASC Topic 260, “Earnings per Share” (“ASC 260”). Dilutive securities
related to the ESPP are calculated by dividing the average withholdings during the period by 85% of the market
value of the Company’s common stock at the end of the period.
In June 2009, the Company completed its offering of 1,400,000 shares of convertible preferred stock. The
preferred stock is generally convertible into shares of common stock and earns cumulative dividends from the
date of original issue at an initial rate of 7.50% per annum. In accordance with ASC 260, dividends on
cumulative preferred stock are subtracted from net income (loss) to calculate net income (loss) allocable to
common shareholders in the basic earnings (loss) per share calculation. As of December 31, 2009, the Company
paid $5,250,000 in dividends to preferred shareholders and accrued $438,000.
The following table summarizes the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock, and reconciles the weighted-average
common shares used in the computation of basic and diluted earnings (loss) per share:
Year Ended December 31,
2009 2008 2007
(In thousands, except per share data)
Numerator:
Net Income (loss) .................................................. $(15,260) $66,176 $54,587
Less: Preferred stock dividends ....................................... (5,688) — —
Net income (loss) allocable to common shareholders ...................... $(20,948) $66,176 $54,587
Denominator:
Weighted-average common shares outstanding—basic ..................... 63,176 63,055 66,371
Options, restricted stock and other dilutive securities .................. — 743 1,113
Weighted-average common shares outstanding—diluted ................... 63,176 63,798 67,484
Basic earnings (loss) per common share ................................. $ (0.33) $ 1.05 $ 0.82
Diluted earnings (loss) per common share ............................... $ (0.33) $ 1.04 $ 0.81
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. For the years
ended December 31, 2009, 2008 and 2007, options outstanding totaling approximately 8,932,000, 5,702,000 and
2,856,000 shares, respectively, were excluded from the calculations as their effect would have been antidilutive.
Additionally, potentially dilutive securities are excluded from the computation in periods in which a net loss is
reported as their effect would be antidilutive, including weighted average common stock equivalents of
10,747,000 for the year ended December 31, 2009, related to convertible preferred shares outstanding. There
were no convertible preferred shares outstanding in 2008 and 2007.
Note 12. 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. On June 15, 2009, the Company
sold 1,400,000 shares of its 7.50% Series B Cumulative Perpetual Convertible Preferred Stock, $0.01 par value.
The remaining shares of preferred stock are undesignated as to series, rights, preferences, privileges or
restrictions.
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