Callaway 2008 Annual Report Download - page 113

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through 2008, the Company had a licensing arrangement with Ashworth, Inc. for a complete line of men’s and
women’s apparel for distribution in the United States, Canada, Europe and South Africa. In the fourth quarter of
2008 Ashworth, Inc. was acquired by the Taylor-Made-adidas Golf business. As a result, the Company elected to
terminate its arrangement with Ashworth, Inc. and is actively working to transition the golf apparel licensing
business to a new licensee.
In addition to apparel, the Company has also licensed its trademarks to, among others, (i) IZZO Golf for
practice aids, (ii) TRG Accessories, LLC for a collection primarily consisting of travel gear, (iii) Fossil, Inc. for a
line of Callaway Golf watches and clocks, (iv) Nikon Vision Co., Ltd. for rangefinders and (v) Global Wireless
Entertainment, Inc. for the creation of golf-related software and applications for wireless handheld devices and
platforms. Prior to April 2006, the Company had a licensing arrangement with Tour Golf Group, Inc. (“TGG”)
for a line of Callaway Golf footwear. In April 2006, the Company terminated the licensing arrangement and
acquired certain assets of TGG. The Company currently designs and sells its own Callaway Golf footwear line.
Additionally, prior to June 2008, the Company had a licensing arrangement with Microvision Optical (“MVO”)
for a line of Callaway Golf eyewear. In June 2008, the Company terminated the licensing arrangement and
entered into a buying services agreement with MVO. The Company currently sells its full line of Callaway Golf
eyewear. The Company recognized royalty income under its various licensing agreements of $8,847,000,
$8,672,000 and $8,292,000 during 2008, 2007 and 2006, respectively.
Note 19. Transactions with Related Parties
In December 2006, the Company purchased the primary residence from one of its recently hired officers at a cost
of $545,000. The purchase was pursuant to the Company’s home purchase procedures as referenced in the officer’s
Employment Agreement. The purchase price was determined based upon two independent appraisals. During
December 2006, the Company was marketing the home and accounted for the home as a long-lived asset held for sale
classified as other assets. In January 2007, this residence was sold and the Company recorded a net loss of $22,500.
The Callaway Golf Company Foundation (the “Foundation”) oversees and administers charitable giving for
the Company and makes grants to carefully selected organizations. Officers of the Company also serve as
directors of the Foundation and the Company’s employees provide accounting and administrative services for the
Foundation. During 2008, 2007 and 2006, the Company did not contribute to the Foundation.
Note 20. Summarized Quarterly Data (Unaudited)
Fiscal Year 2008 Quarters
1st 2nd 3rd 4th(2) Total
(In thousands, except per share data)
Net sales .................................. $366,452 $366,029 $213,451 $171,272 $1,117,204
Gross profit ................................ $175,534 $171,080 $ 80,131 $ 60,088 $ 486,833
Net income (loss) ........................... $ 39,666 $ 37,107 $ (7,443) $ (3,154) $ 66,176
Earnings (loss) per common share(1)
Basic ................................. $ 0.62 $ 0.59 $ (0.12) $ (0.05) $ 1.05
Diluted ................................ $ 0.61 $ 0.58 $ (0.12) $ (0.05) $ 1.04
Fiscal Year 2007 Quarters
1st 2nd 3rd 4th Total
Net sales .................................. $334,607 $380,017 $235,549 $174,418 $1,124,591
Gross profit ................................ $160,721 $175,125 $ 94,006 $ 63,371 $ 493,223
Net income (loss) ........................... $ 32,836 $ 36,639 $ 1,269 $ (16,157) $ 54,587
Earnings (loss) per common share(1)
Basic ................................. $ 0.49 $ 0.54 $ 0.02 $ (0.25) $ 0.82
Diluted ................................ $ 0.48 $ 0.53 $ 0.02 $ (0.25) $ 0.81
(1) Earnings per share is computed individually for each of the quarters presented; therefore, the sum of the
quarterly earnings per share may not necessarily equal the total for the year.
(2) In the fourth quarter of 2008, net income and earnings per share were favorably affected by the reversal of a
$19,922,000 energy derivative valuation account, which resulted in an after-tax benefit of $14,058,000
($0.22 per share) (see Note 15).
F-39