Callaway 2003 Annual Report Download - page 73

70 CALLAWAY GOLF COMPANY
value of indemnities, commitments and guarantees that
the Company issued during 2003 was not material to the
Company’s financial position, results of operations or
cash flows.
Employment Contracts
The Company has entered into employment contracts with
each of the Company’s officers. These contracts generally
provide for severance benefits, including salary continuation, if
employment is terminated by the Company for convenience
or by the officer for substantial cause. In addition, in order
to assure that the officers would continue to provide
independent leadership consistent with the Company’s best
interests in the event of an actual or threatened change in
control of the Company, the contracts also generally provide
for certain protections in the event of such a change in control.
These protections include the extension of employment
contracts and the payment of certain severance benefits,
including salary continuation, upon the termination of
employment following a change in control. The Company is
also generally obligated to reimburse such officers for the
amount of any excise taxes associated with such benefits.
Years Ended December 31,
(In thousands) 2003 2002 2001
Net sales
(1)
Golf Clubs $ 735,654 $ 727,196 $ 763,219
Golf Balls 78,378 66,023 54,853
$ 814,032 $ 793,219 $ 818,072
Income (loss) before tax
(1)
Golf Clubs
(2)
$167,996 $ 179,489 $ 186,570
Golf Balls
(3)
(52,687) (25,576) (17,868)
Reconciling items
(4)(5)
(47,476) (42,242) (70,510)
$ 67,833 $ 111,671 $ 98,192
Identifiable assets
Golf Clubs $ 307,462 $ 311,823 $ 343,741
Golf Balls 190,172 103,152 60,166
Reconciling items
(6)
250,932 264,870 243,695
$ 748,566 $ 679,845 $ 647,602
Goodwill
Golf Clubs $ 20,216 $ 18,202 $ 16,846
Golf Balls — — —
$ 20,216 $ 18,202 $ 16,846
Depreciation and amortization
Golf Clubs $ 30,818 $ 30,628 $ 33,212
Golf Balls 13,678 7,012 4,255
$ 44,496 $ 37,640 $ 37,467
(1) Beginning with the first quarter of 2003, the Company records royalty revenue in net sales
and royalty expenses as a component of selling expenses. Previously, royalty revenue and
royalty expenses were recorded as a component of other income. Prior periods have been
reclassified to conform with the current period presentation.
(2) For 2002, the Company’s income before tax includes the effect of the change in accounting
estimate for the Company’s warranty accrual. During the third quarter of 2002, the
Company reduced its warranty reserve by approximately $17,000,000 (Note 4).
(3) On September 15, 2003, the Company completed the domestic portion of the Top-Flite
Acquisition. The settlement of the international assets was effective October 1, 2003. Thus,
the Company’s financial data include the Top-Flite business results of operations in the
United States from September 15, 2003, through December 31, 2003, and the international
operations from October 1, 2003, through December 31, 2003. Additionally, the
Company’s 2003 income (loss) before tax includes the recognition of integration charges
related to the consolidation of its Callaway Golf and Top-Flite golf ball and golf club
manufacturing and research and development operations. These charges reduced the
Company’s income (loss) before tax by approximately $24,080,000 (Notes 2 and 3).
(4) For 2001, the Company’s income (loss) before tax includes the recognition of unrealized
energy contract losses due to changes in the estimated fair value of the energy contract
based on market rates. During the second and third quarters of 2001, the Company recorded
an aggregate $19,922,000 of unrealized losses. During the fourth quarter of 2001, the
Company terminated the energy contract. As a result, the Company will continue to reflect
the derivative valuation account on its balance sheet with no future valuation adjustments
for changes in market rates, subject to periodic review (Notes 8 and 13).
(5) Represents corporate general and administrative expenses and other income (expense) not
utilized by management in determining segment profitability.
(6) Identifiable assets are comprised of net inventory, certain property, plant and equipment,
intangible assets and goodwill. Reconciling items represent unallocated corporate assets
not segregated between the two segments.
Note 14. Segment Information
The Company’s operating segments are organized on the basis
of products and include Golf Clubs and Golf Balls. The Golf
Clubs segment consists primarily of Callaway Golf, Top-Flite
and Ben Hogan woods, irons, wedges and putters as well as
Odyssey putters and other golf-related accessories. The Golf
Balls segment consists primarily of Callaway Golf, Top-Flite,
Ben Hogan and Strata golf balls that are designed, manufactured
and sold by the Company. There are no significant intersegment
transactions.
The table below contains information utilized by management
to evaluate its operating segments.