Callaway 2000 Annual Report Download

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Callaway Golf Company
2000 Annual Report
grow
the game
recreational golf

Table of contents

  • Page 1
    Callaway Golf Company 2000 Annual Report grow the game recreational golf

  • Page 2
    .... That is why we try to design, create, build and sell the most forgiving golf clubs in the history of the game - giving more golfers more opportunities to hit a few additional "great" shots each round. We intend to continue to try to grow the game by helping people enjoy the game." - Ely Callaway

  • Page 3
    Enjoy the game

  • Page 4
    we make golf

  • Page 5
    fun for...

  • Page 6
    amateurs and

  • Page 7
    professionals,

  • Page 8
    men and women

  • Page 9
    n,young and old.

  • Page 10
    ... X-14® irons in 2000, and they were enthusiastically accepted by golfers worldwide. The Odyssey® brand grew to a 30% U.S. market share as it retained its position as the #1 putter in golf. Meanwhile, the Big Bertha Steelhead Plus™ and Great Big Bertha® Hawk Eye® Drivers and Fairway Woods sold...

  • Page 11
    ... Bertha ERC II Forged Titanium Driver, Big Bertha Hawk Eye VFT Titanium Drivers and Fairway Woods, Big Bertha Steelhead X-14 Pro Series Irons and Odyssey® TriHot™ Putters. We have also created the new Callaway Golf "CB1™" two-piece golf balls. This entire line of new products is the very best...

  • Page 12
    ..., we will offer our very best driver - the Big Bertha ERC II Forged Titanium Driver - only for use in recreational or social rounds of golf. In this way, the great many golfers who seldom play in competitive tournaments can enjoy the benefits of this exceptional golf club (which is approved by the...

  • Page 13
    ... and sale of the very best golf clubs. That impediment is the USGA's campaign to prevent the purchase and use of our ERC II Driver in the United States. While the effect of this unprecedented effort may not be felt this year - because 99% of our products fully conform with the USGA's Rules of Golf...

  • Page 14
    ... Big Bertha ERC II Forged Titanium Driver The ERC II is the best driver Callaway Golf has ever made. It is hot. It is forgiving. And it is conforming to the rules of golf in all but three countries in the world. The USGA, whose Rules of Golf are followed in the United States, Canada and Mexico...

  • Page 15
    Big Bertha Hawk Eye VFT Titanium Driver and Fairway Woods These cast titanium drivers and fairway woods were carefully calibrated to deliver maximum results without exceeding the performance limitations imposed by the USGA. As a result, the tour-proven Hawk Eye VFT Titanium Driver inspires ...

  • Page 16
    ...in accordance with Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Revenues and Costs." See accompanying Notes to Consolidated Financial Statements. Adjusted for all stock splits. Includes cumulative effect of accounting change of $957. Includes cumulative effect of...

  • Page 17
    ...Selected Financial Data ...12 Management's Discussion and Analysis of Financial Condition...Financial Statements ...28 Report of Independent Accountants ...42 Summarized Quarterly Financial Data (Unaudited) ...43 Market for Common Shares and Related Shareholder Matters . . 43 Financials Callaway Golf...

  • Page 18
    ...,163 $630,934 $ 9,884 $511,744 Shipping revenues and expenses have been reclassified in accordance with Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Revenues and Costs." See accompanying Notes to Consolidated Financial Statements. Callaway Golf Company | 18

  • Page 19
    ...-introduced ERC II TM Forged Titanium Drivers and Big Bertha® Hawk Eye® VFTTM Titanium Metal Woods, which began shipping in limited quantities in December 2000, partially offset the decrease in sales of titanium metal woods. Also partially offsetting the decrease in sales of titanium metal woods...

  • Page 20
    ... in sales of Big Bertha® Steelhead T M X-12 ® Irons, which were introduced in January 1998, partially offset by sales from the August 1999 introduction of Great Big Bertha® Hawk Eye® Tungsten Injected T M Titanium Irons of $27.7 million. Sales of Odyssey® and Callaway Golf® putters decreased...

  • Page 21
    ... "Amended Credit Agreement") and an $80.0 million accounts receivable securitization facility (the "Accounts Receivable Facility") (see Notes 4 and 5 to the Consolidated Financial Statements). During 2000, the Company did not utilize either its Accounts Receivable Facility or Callaway Golf Company...

  • Page 22
    ...golf sites, golf book publishing, new player development and a golf venue in Las Vegas; and the re-sizing of the Company's core business to reflect current and expected business conditions. The restructuring charges primarily related to: 1) the elimination of job responsibilities, resulting in costs...

  • Page 23
    ... Company's financial performance. In addition, if the Company were to experience delays, difficulties or increased costs in its production of golf clubs or golf balls, including production of new products needed to replace current products, the Company's future golf club or golf ball sales could be...

  • Page 24
    ... to its business. The Company uses United Parcel Service ("UPS") for substantially all ground shipments of products to its U.S. customers. The Company is continually reviewing alternative methods of ground shipping to supplement its use and reduce its reliance on UPS. To date, a limited number of...

  • Page 25
    ... and/or result in close-out sales at reduced prices. Conformance with Rules of Golf A golf manufacturer's ability to compete is in part dependent upon its ability to satisfy the various subjective requirements of golfers, including a golf club's and golf ball's look and "feel," and the level...

  • Page 26
    ... be "conforming" under the Rules of Golf as published by the USGA and RCGA. Although the ERC Drivers conform to all TM Golf Professional Endorsements The Company establishes relationships with professional golfers in order to evaluate and promote Callaway Golf® and Odyssey® branded products. The...

  • Page 27
    ...broken graphite shafts and loose medallions. While any breakage or warranty problems are deemed significant to the Company, the incidence of clubs returned to date has not been material in relation to the volume of clubs that have been sold. The Company monitors the level and nature of any golf club...

  • Page 28
    ... the Company's performance and financial condition. Information Systems Some quantities of the Company's products find their way to unapproved outlets or distribution channels. This "gray market" for the Company's products can undermine authorized retailers and foreign wholesale distributors who...

  • Page 29
    ... Callaway Golf Canada Ltd. The Company also hedged certain euro-denominated accounts receivable in 2000. Also pursuant to its foreign exchange hedging policy, in the fourth quarter of 2000, the Company began hedging anticipated intercompany sales of inventory denominated in foreign currencies using...

  • Page 30
    ... liabilities: Accounts payable and accrued expenses Accrued employee compensation and benefits Accrued warranty expense Accrued restructuring costs Income taxes payable Total current...934 $616,783 The accompanying notes are an integral part of these financial statements. Callaway Golf Company | 30

  • Page 31
    ...E R AT I O N S (in thousands, except per share data) 2000 Net sales Cost of goods sold Gross profit Selling expenses General and administrative expenses Research and development costs Restructuring costs (Note 14) Sumitomo transition costs (Note 16) Income (loss) from operations Interest and other...

  • Page 32
    ...Deferred taxes Non-cash restructuring costs Loss on disposal of assets Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable, net Inventories, net Other assets Accounts payable and accrued expenses Accrued employee compensation and benefits Accrued warranty expense...

  • Page 33
    ...of stock options Cancellation of Restricted Common Stock Compensatory stock and stock options Employee stock purchase plan Cash dividends ...959 $790 $347,765 $(1,214) $(98,713) (4,815) $(80,469) The accompanying notes are an integral part of these financial statements. Callaway Golf Company | 33

  • Page 34
    ... Woods, Biggest Big Bertha® Titanium Drivers, Great Big Bertha® Titanium Metal Woods, Great Big Bertha® Hawk Eye® Tungsten Injected TM Titanium Irons, Steelhead X-14 ® and TM X-12 ® Irons, Great Big Bertha ® Tungsten•Titanium TM Irons, Odyssey® putters and wedges and Rule 35® golf balls...

  • Page 35
    ... as incurred. Expenditures that materially increase values, change capacities or extend useful lives are capitalized. Replacements are capitalized and the property, plant, and equipment accounts are relieved of the items being replaced. The related costs and accumulated depreciation of disposed...

  • Page 36
    ... plan that included a number of cost reduction actions and operational improvements (Note 14). As a result of this plan, impairment losses were recorded in 1998 for certain of the Company's long-lived assets. The Company utilizes the management approach to report segment information. The management...

  • Page 37
    ...-10, "Accounting for Shipping and Handling Revenues and Costs." Pursuant to EITF Issue No. 00-10 and the Securities and Exchange Commission's position on this issue, all amounts billed to customers for shipping and handling should be included in "net sales" and costs incurred related to shipping and...

  • Page 38
    ... rights, title, interest and obligations of Callaway Golf Ball Company under the master lease agreement. Note 5 A CCO U N TS R E C E I VA B L E S E C U R I T I Z AT I O N During 2000, 1999 and 1998, the Company entered into forward foreign currency exchange rate contracts to hedge payments due on...

  • Page 39
    ...'s non-qualified or qualified employee benefit plans. Shares owned by the GST are accounted for as a reduction to shareholders' equity until used in connection with employee benefits. Each period, the shares owned by the GST are valued at the closing market price, with corresponding changes in...

  • Page 40
    ... to golf professionals and other endorsers at prices that may be less than the market value of the stock at the grant date. The Directors Plan permits the granting of options to purchase shares of Common Stock to Directors of the Company who are not employees, at prices based on a non-discretionary...

  • Page 41
    ...sale or transfer until vesting, will vest on January 1, 2003. The related net compensation expense of $1,914,000 is being recognized ratably over the vesting period, based on the difference between the exercise price and market value of the stock on the measurement date. Employee Stock Purchase Plan...

  • Page 42
    ... valuation of options granted to non-employees is estimated using the Black-Scholes option pricing model. Unearned compensation has been charged for the value of options granted to both employees and non-employees on the measurement date based on the valuation methods described above. These amounts...

  • Page 43
    ... against Callaway Golf Company, Callaway Golf Ball Company (collectively "Callaway Golf"), and a golf retailer located in Georgia (the "U.S. Action"). Bridgestone alleges in the U.S. Action that the manufacture and sale of the Company's Rule 35® golf ball infringes four U.S. golf ball patents owned...

  • Page 44
    ... date has been set by the District Court. On December 14, 2000, Bridgestone filed an action in the Tokyo, Japan, District Court asserting patent infringement against Callaway Golf's wholly-owned subsidiary, Callaway Golf K.K., based on its sale of Rule 35® golf balls in Japan (the "Japan Action...

  • Page 45
    ... and management does not expect this effect to materially impact future results of operations. Cash/ Non-Cash Elimination of Job Responsibilities Severance packages Other Exiting Certain Non-Core Business Activities Loss on disposition of subsidiaries Excess lease costs Contract cancellation fees...

  • Page 46
    ... a ninehole golf course, performance center, training facility and driving range located in Las Vegas, Nevada. On December 30, 1998, as part of its business plan to discontinue certain non-core business activities, the Company sold the business of All-American in exchange for barter trade credits...

  • Page 47
    ... is a publishing and media company which is owned 9% by Ely Callaway, Chairman, President and Chief Executive Officer of the Company, and 81% by his son, Nicholas Callaway. CGMV was formed to produce print and other media products that relate to the game of golf. Pursuant to the agreement, the...

  • Page 48
    ... of Callaway Golf Company and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These...

  • Page 49
    ... per share may not necessarily equal the total for the year. (3) Effective January 1, 2000, Callaway Golf adopted Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". Accordingly, Callaway Golf has restated its results for all quarters of the year ended December 31...

  • Page 50
    ...U.S. Sales DONNA L. KAPTAIN Senior Vice President, Human Resources CAROL A. KERLEY Senior Vice President, I.S. and Chief Information Officer ROBERT A. PENICKA Senior Vice President, Golf Ball Manufacturing KENNETH E. WOLF Senior Vice President, Finance, Planning and Analysis Directors ELY CALLAWAY...

  • Page 51
    ... Superior and Pleasingly Different - Dual Force - ERC - ERC II - Firmfeel - Gems - Ginty - Great Big Bertha - Hawk Eye - Odyssey - Odyssey Golf - RCH - Rule 35 - Softfeel - S2H2 - Steelhead - Steelhead Plus - TriHot - Tungsten Titanium - Tungsten•Injected - VFT - War Bird - White Hot - X-12 - X-14

  • Page 52