Callaway 2010 Annual Report Download - page 103

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Liabilities” (“ASC 405-20”). During the fourth quarter of 2008, the Company, in consultation with its outside
advisors, determined that the Company had met the criteria under ASC 405-20 and therefore reversed the
derivative liability. As a result, the Company recorded in other income in the fourth quarter of 2008, a
$19,922,000 non-cash, non-operational benefit.
Note 12. Earnings (Loss) per Common Share
Earnings (loss) per common share, basic, is computed by dividing net income (loss) allocable to common
shareholders by the weighted-average number of common shares outstanding for the period. Earnings (loss) per
common share, diluted, is computed by dividing net income by the weighted-average number of common and
potentially dilutive common equivalent shares outstanding for the period. Weighted-average common shares
outstanding—diluted is the same as weighted-average common shares outstanding—basic in periods when a net
loss is reported, or in periods when diluted earnings (loss) per share is more favorable than basic earnings (loss)
per share.
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 14). 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, 2010, the Company
paid $10,500,000 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,
2010 2009 2008
(In thousands, except per share data)
Numerator:
Net Income (loss) .................................................. $(18,804) $(15,260) $66,176
Less: Preferred stock dividends ....................................... (10,500) (5,688) —
Net income (loss) allocable to common shareholders ...................... $(29,304) $(20,948) $66,176
Denominator:
Weighted-average common shares outstanding—basic .................... 63,902 63,176 63,055
Options, restricted stock and other dilutive securities .................. — — 743
Weighted-average common shares outstanding—diluted ................... 63,902 63,176 63,798
Basic earnings (loss) per common share ................................ $ (0.46) $ (0.33) $ 1.05
Diluted earnings (loss) per common share .............................. $ (0.46) $ (0.33) $ 1.04
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
F-25