Callaway 1998 Annual Report Download

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CALLAWAY GOLF COMPANY
 ANNUAL REPORT
BIG BERTHA
STEELHEAD
GREAT BIGBERTHA
AWK YE
TITANIUM

Table of contents

  • Page 1
    BIG BERTH GREAT B IG B ERTHA AWK C A L L A W A Y A N N U A L T ITA NIU M YE C O M P A N Y G R O L F  E P O R T STEELHEA D

  • Page 2
    ... Golf Company designs, manufacturers and sells premium, innovative golf clubs that are demonstrably superior to, and pleasingly different from, its competitors' products. Callaway Golf's primary products currently include Big Bertha® Metal Woods and Irons, including Great Big Bertha® Hawk Eye...

  • Page 3
    ... share data) 1998 1997 1996 1995 1994 1993 1992 ** Net sales Pretax (loss) income Net (loss) income Basic (loss) earnings per share * Diluted (loss) earnings per share * Shareholders' equity Market capitalization at December 31 * Adjusted for all stock splits * * The Company was not public...

  • Page 4
    ... this year, our focus will also be directed toward producing and selling the world's best golf balls - on the schedule we planned originally. We will continue to direct our resources - talent, energy, and money - in an ever-increasing degree toward the creation, design, production, sale and service...

  • Page 5
    ..., the former President and CEO of our Odyssey subsidiary, to the position of Senior Executive Vice President, Manufacturing (Golf Clubs) for the parent company. We believe that both of these moves add a great deal to the strength of our senior management team. LHEA D â- I expect that our income...

  • Page 6
    ... have as we look ahead. AWK â- When Callaway Golf entered the golf club business in the early 1980's, we were very fortu- nate because there was no single competitor which had a dominant brand name, product line and market position on woods and irons combined. Our growth and success since that...

  • Page 7
    ..., LPGA Tour, Senior PGA Tour, and NIKE Tour). Sports Marketing Survey, Ltd., is also an independent company whose representatives identify equipment brands used on the PGA European Tour. C 5 * Includes all models (War Bird, S 2 H 2 , Big Bertha Steelhead, Big Bertha, Great Big Bertha, Bobby Jones...

  • Page 8
    ...STATEMENT OF OPERATIONS O M P A N Y CONSOLIDATED STATEMENT OF C ASH FLOWS CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS O L F C ... A L L A W A Y G REPORT OF INDEPENDENT ACCOUNTANTS ... SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED...

  • Page 9
    ...ATA (in thousands, except per share data) 1998 1997 Year ended D ecember 31, 1996 1995 1994 Statement of Operations Data: Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Research and development costs Restructuring costs Litigation settlement (Loss) income...

  • Page 10
    ... metal wood wholesale price reduction on Big Bertha® War Bird® stainless steel metal woods and Great Big Bertha® and Biggest Big Bertha® titanium metal woods and the accompanying customer compensation, an increase in warranty expense, and increased manufacturing labor and overhead costs. Selling...

  • Page 11
    ... woods, irons, and putters. Metal wood sales increased $65.1 million primarily due to sales of Biggest Big Bertha® Titanium Drivers. Iron sales increased $65.4 million primarily due to sales of Great Big Bertha® Tungsten •Titanium™ Irons, which generated revenues of $59.3 million for the year...

  • Page 12
    ... into the operations of the Company while maintaining the distinct and separate Odyssey® brand image; the discontinuation, transfer or suspension of certain initiatives not directly associated with the Company's core business, such as the Company's involvement with interactive golf sites, golf book...

  • Page 13
    ...lower sales revenue associated with a metal wood wholesale price reduction on Big Bertha® War Bird® Stainless Steel Metal Woods, and Great Big Bertha® and Biggest Big Bertha® Titanium Metal Woods and accompanying customer compensation, an increase in warranty expense, and increased manufacturing...

  • Page 14
    ... will be able to continue to design and manufacture golf clubs that achieve market acceptance in the future. T he rapid introduction of new products by the Company can result in closeouts of existing inventories at both the wholesale and retail levels. Such closeouts can result in reduced margins on...

  • Page 15
    ... golf clubs, its products may be more likely to develop unanticipated problems than those of many of its competitors which use traditional designs. For example, clubs have been returned with cracked clubheads, broken graphite shafts and loose medallions. In addition, the Company's Biggest Big Bertha...

  • Page 16
    ... injure the Company's image in the minds of its customers and consumers. On the other hand, stopping such commerce could result in a potential decrease in sales to those customers who are selling Callaway Golf products to unauthorized distributors and/ or an increase in sales returns over historical...

  • Page 17
    ... extend it. T he Company has established ERC, a wholly owned Japanese corporation, for the purpose of distributing Odyssey® products. ERC also will distribute Callaway Golf balls when ready and Callaway Golf clubs beginning January 1, 2000. T here will be significant costs and capital expenditures...

  • Page 18
    ... for the purpose of designing, manufacturing and selling golf balls. T he Company has previously licensed the manufacture and distribution of a golf ball product in Japan and Korea. T he Company also distributed a golf ball under the trademark "Bobby Jones." T hese golf ball ventures were introduced...

  • Page 19
    ... the product. In October 1997, the Company implemented a new business computer system, which runs most of the Company's data processing and financial reporting software applications and has in part addressed remediation issues Company-wide. T he manufacturer of the application software used on...

  • Page 20
    ... procedures to manage its exposure to fluctuations in the value of foreign currencies. During 1998, the Company entered into forward foreign currency exchange rate contracts to hedge payments due on intercompany transactions by one of its wholly-owned foreign subsidiaries, Callaway Golf Europe Ltd...

  • Page 21
    ... (in thousands, except share and per share data) 1998 D ecember 31, 1997 ASSETS Current assets: Cash and cash equivalents Accounts receivable, net Inventories, net Deferred taxes Other current assets Total current assets Property, plant and equipment, net Intangible assets, net Other assets $ 45...

  • Page 22
    ... per share data) 1998 Year ended D ecember 31, 1997 1996 Net sales Cost of goods sold Gross profit Selling expenses General and administrative expenses Research and development costs Restructuring costs Litigation settlement (Loss) income from operations Interest and other income, net Interest...

  • Page 23
    ...: Accounts receivable, net Inventories, net Other assets Accounts payable and accrued expenses Accrued employee compensation and benefits Accrued warranty expense Income taxes payable Accrued restructuring costs Other liabilities Accrued restructuring costs - long-term Net cash provided by operating...

  • Page 24
    ...Common Stock Compensatory stock and stock options Employee stock purchase plan Stock retirement Cash dividends Dividends on shares held by GST Adjustment of GST shares to market value Equity adjustment from foreign currency translation Net loss Balance, December 31, 1998 75,095 $751 $258,015 $(5,653...

  • Page 25
    ...1982. T he Company designs, develops, manufactures and markets high-quality, innovative golf clubs. Callaway Golf 's primary products include Big Bertha® metal woods with the War Bird® soleplate, Great Big Bertha® titanium metal woods, Biggest Big Bertha® titanium drivers, Big Bertha® Steelhead...

  • Page 26
    ...85% of the lower of the offering period price or the market value at the end of the period. T he dilutive effect of rights to purchase preferred shares under the Callaway Golf Shareholder Rights Plan have not been included as dilutive securities because the conditions necessary to cause these rights...

  • Page 27
    ..., 1996 was not material. Stock-Based Compensation T he Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method. Pro forma disclosures of net income and earnings per share, as if the fair value-based method had been applied in measuring...

  • Page 28
    .... During 1998, no investments in U.S. Government securities were held. T he Company operates in the golf equipment industry and primarily sells its products to golf equipment retailers and foreign distributors. T he Company performs ongoing credit evaluations of its customers' financial condition...

  • Page 29
    ... of the Company'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...

  • Page 30
    ... stock awards to the Company's officers, employees and consultants. Under the 1991 Plan, option prices may be less than the market value at the date of grant, while under the 1996 Plan and the 1998 Plan options may not be granted at option prices that are less than fair market value at the date of...

  • Page 31
    ... price = market value Exercise price > market value Exercise price < market value 3,878 5 137 4,020 $25.88 $28.56 $ 1.28 $25.04 C A L L A W A Y G O L F C Year ended D ecember 31, 1997 1996 O M P A N Y Under the Company's stock option plans, outstanding options vest over periods ranging...

  • Page 32
    ...between the exercise price and market value of the stock on the measurement date. Employee Stock Purchase Plan 3 0 T he Company has granted officers, consultants, and employees rights to receive an aggregate of 826,800 shares of Common Stock for services or other consideration. During 1998, 80,000...

  • Page 33
    ... compensation expense based upon the fair value at the grant date for employee awards under these plans, the Company's net (loss) income and (loss) earnings per share would be changed to the pro forma amounts indicated below: (in thousands, except per share data) 1998 Year ended D ecember 31, 1997...

  • Page 34
    ...,287 11,154 1,244 A L L A W A Y G O L F C Deferred tax liabilities: State taxes, net of federal income tax benefit Net deferred tax assets 3 2 C During 1998, 1997 and 1996, the Company recognized certain tax benefits related to stock option plans in the amount of $3,068,000, $29,786,000 and...

  • Page 35
    ... into the operations of the Company while maintaining the distinct and separate Odyssey® brand image; the discontinuation, transfer or suspension of certain initiatives not directly associated with the Company's core business, such as the Company's involvement with interactive golf sites, golf book...

  • Page 36
    ...1999. As part of this plan, the Company elected to consolidate its operations and to sell certain of its buildings, which housed a portion of its manufacturing and research and development activities. Other write-downs were recorded during 1998 for idle assets, assets whose manner of use had changed...

  • Page 37
    ... information is not presented. In May 1998, the Company acquired for $4,526,000 the remaining 80% interest in AllAmerican, which operates a nine-hole golf course, performance center, training facility and driving range located in Las Vegas, Nevada. On December 30, 1998, as part of its business plan...

  • Page 38
    ...balls. T he golf clubs segment consists of Callaway® titanium and steel metal woods and irons, Callaway® and Odyssey® putters and wedges, and sales of related accessories. T he golf balls segment consists of golf balls that are to be designed, manufactured, marketed and distributed by the Company...

  • Page 39
    ...is a publishing and media company which is owned 9% by Ely Callaway, Chairman 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 Company agreed to...

  • Page 40
    ...of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Callaway Golf Company and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31...

  • Page 41
    ... the New York Stock Exchange (NYSE). T he Company's symbol for its Common Shares is "ELY." As of March 8, 1999, the approximate number of holders of record of the Company's Common Stock was 9,645. Stock Price Information Year ended D ecember 31, 1998 1997 Period: First Quarter Second Quarter T hird...

  • Page 42
    ... Feel in Golf - T he World's Favorite Golf Club - T he Tuttle - Tuttle II - Big In All T he Right Places For All T he Right Reasons - Deuce - Titanic - Ladies' Gems - RCH Series 99 - BBUL - BJ-1 - T he World's Friendliest Golf Clubs - the oval Hawk Eye design - Carlsbad Series - Memphis "10" ODYSSEY...