Callaway 2009 Annual Report Download

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CALLAWAY GOLF COMPANY ANNUAL REPORT 2009

Table of contents

  • Page 1
    C A L L A W AY G O L F C O M PA N Y ANNUAL REPORT 20 09

  • Page 2
    "Currently, about half of the Company's revenues are generated outside the U.S., and we believe our international business will be one of our biggest growth engines for the future."

  • Page 3
    ...tbe modern business world. Witb everytbing and everyone moving faster tban everD tecbnology bas been and will continue to be a cornerstone for Callaway Golf's ongoing growtb. Golf is becoming a more global svort every yearD and no otber comvany invests as mucb as we do to stay on tbe cutting edge of...

  • Page 4
    ...: The true character and strength of a company becomes most evident not in the good times, but when it faces adversity. Last year was just such a year. In 2009, Callaway Golf confronted conditions unlike any in our 27-year history. Testing the competitive spirit that has propelled us to the top...

  • Page 5
    ...the major golf club categories, our woods, irons and putters saw an increase in market share, illustrating the strength of our product line. In fact, Callaway finished as the #1 Irons in Golf for the 13th straight year, Odyssey continued its strong position as the #1 Putter in Golf, our woods gained...

  • Page 6
    ... most gold medals (10) in Golf Digest's recent "Hot List" review of new product offerings from all golf manufacturers. We also received accolades for our Callaway uPro GPS device, which Popular Science awarded with a 2009 "Best of What's New" distinction. On the marketing front, we are committed to...

  • Page 7
    ... deal with adversity. And despite the pressure that comes with tough economic challenges, we have created a great place to work, as evidenced by Callaway Golf being presented with the Grand Prize at the 10th Annual San Diego SHRM Workplace Excellence Awards. Legendary author and humorist Mark Twain...

  • Page 8
    ... Chairman and Managing Partner Global Infrastructure Management, LLC Joseph Urzetta Senior Vice President, U.S. Sales Richard L. Rosenfield Co-Founder, Co-Chairman of the Board, Co-Chief Executive Officer and Co-President, California Pizza Kitchen, Inc. Thomas T. Yang Senior Vice President...

  • Page 9
    CORPORATE DATA Independent Registered Public Accounting Firm MEETING AND INFORMATION The 2010 Annual Meeting of Shareholders Tuesday, May 18, 2010 Callaway Golf Company Headquarters 2180 Rutherford Road Carlsbad, CA 92008 760.931.1771 For more information visit the Company's websites: Deloitte & ...

  • Page 10
    ... ANNUAL REPORT For the fiscal year ended December 31, 2009 CERTIFICATIONS In May 2009, the Company filed with the New York Stock Exchange the Annual CEO Certification required under Section 303A.12(a) of the NYSE's Listed Company Manual regarding the Company's compliance with the NYSE's corporate...

  • Page 11
    ... ACT OF 1934 For the fiscal year ended December 31, 2009 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 1-10962 ' Callaway Golf Company (Exact name of registrant as specified in its charter...

  • Page 12
    ... Lady-FTi-brid-FTiQ-FTiZ-FT Performance-FT Tour-FT-5-FT-9-Freak-Fusion-Game Series-Gems-Great Big Bertha-Heavenwood- Hogan-HX-HX Bite-HX Hot Plus-HX Hot Bite-IMIX-Legacy-Legacy Aero-Legend-Marksman-Never Lay Up-Number One Putter in Golf-Odyssey-OptiFit-ORG.14-Rossie-S2H2-Sabertooth-SRT- SenSert...

  • Page 13
    ..., Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters ...Certain Relationships, Related Transactions and Director Independence ...Principal Accountant Fees and Services ...PART...

  • Page 14
    ...quality golf clubs (drivers, fairway woods, hybrids, irons, wedges and putters) and golf balls, and also sells golf accessories (such as GPS range finders, golf bags, gloves, footwear, apparel, headwear, eyewear, towels and umbrellas) under the Callaway, Odyssey, Top-Flite, Ben Hogan, and uPro brand...

  • Page 15
    ...than titanium drivers and fairway woods, and titanium products sell at higher price points than steel products. The Company's drivers, fairway woods and hybrid products are available in a variety of lofts, shafts and other specifications to accommodate the preferences and skill levels of all golfers...

  • Page 16
    ...on-course range finders, golf and lifestyle apparel, recreational club sets, headwear, towels, umbrellas, eyewear and other accessories, as well as sales of pre-owned products through Callaway Golf Interactive, Inc. Additionally, this product category includes royalties from licensing of the Company...

  • Page 17
    ... golf retailers and sporting goods retailers who sell quality golf products and provide a level of customer service appropriate for the sale of such products. The Company also sells certain products to mass merchants. On a consolidated basis, no one customer that distributes golf clubs or golf balls...

  • Page 18
    ... and golf-related accessories through its websites, www.callawaygolfpreowned.com and www.callawaygolfoutlet.com. The Company generally acquires the pre-owned products through the Company's Trade In! Trade Up! program, which gives golfers the opportunity to trade in their used Callaway Golf clubs and...

  • Page 19
    .... The website offers the full line of Callaway Golf, Top-Flite and Odyssey products, including drivers, fairway woods, hybrids, irons, golf balls, footwear, eyewear, golf and lifestyle apparel and golf-related accessories, including uPro GPS on-course range finders. Advertising and Promotion Within...

  • Page 20
    ... Property The Company is the owner of approximately 3,000 U.S. and foreign trademark registrations and over 2,500 U.S. and foreign patents relating to the Company's products, product designs, manufacturing processes and research and development concepts. Other patent and trademark applications...

  • Page 21
    ..., certain of the Company's production employees in Canada and Australia are also unionized. The Company considers its employee relations to be good. Access to SEC Filings through Company Website Interested readers can access the Company's annual reports on Form 10-K, quarterly reports on Form 10...

  • Page 22
    ... discretionary spending and therefore reduce sales of the Company's products. The Company sells golf clubs, golf balls and golf accessories. These products are recreational in nature and are therefore discretionary purchases for consumers. Consumers are generally more willing to make discretionary...

  • Page 23
    ...A severe or prolonged economic downturn could adversely affect our customers' financial condition, their levels of business activity and their ability to pay trade obligations. The Company primarily sells its products to golf equipment retailers directly and through wholly-owned domestic and foreign...

  • Page 24
    ... affect the Company's sales. The Company generates substantially all of its revenues from the sale of golf-related products, including golf clubs, golf balls and golf accessories. The demand for golf-related products in general and golf balls in particular, is directly related to the number of golf...

  • Page 25
    ... global supply chain coordination for the relevant golf club or golf ball business segment, including damage to inventory at the respective facilities. In addition, the Company could incur significantly higher costs and longer delivery times associated with fulfilling orders and distributing product...

  • Page 26
    ... club and a pre-owned club. Successful marketing activities, discounted pricing, consignment sales, extended payment terms or new product introductions by competitors could negatively impact the Company's future sales. Golf Balls. The golf ball business is also highly competitive. There are a number...

  • Page 27
    ...the Company's sell-in to the golf retail channel of its golf club products for the new golf season. Orders for many of these sales are received during the fourth quarter of the prior year. The Company's second and third quarter sales generally represent reorder business for golf clubs. Sales of golf...

  • Page 28
    ... under applicable Rules of Golf could adversely affect the Company's business. The Company generally seeks to have its new golf club and golf ball products satisfy the standards established by the USGA and the R&A in the Rules of Golf because these standards are generally followed by golfers, both...

  • Page 29
    ...golfers in order to evaluate and promote Callaway Golf, Odyssey, Top-Flite and Ben Hogan branded products. The Company has entered into endorsement arrangements with members of the various professional tours, including the Champions Tour, the PGA Tour, the LPGA Tour, the PGA European Tour, the Japan...

  • Page 30
    ... of the Company. The Company sells and distributes its products directly in many key international markets in Europe, Asia, North America and elsewhere around the world. These activities have resulted and will continue to result in investments in inventory, accounts receivable, employees, corporate...

  • Page 31
    ... of its headquarters building, which allowed the Company to vacate two of its leased buildings as of the end of 2009. The eight buildings utilized in the Company's Carlsbad operations include corporate offices, the Company's performance center, as well as manufacturing, research and development...

  • Page 32
    ... number of other properties domestically and internationally, including properties in Australia, Canada, Japan, Korea, the United Kingdom, China, Thailand, Malaysia and India. The Company's operations at each of these properties are used to some extent for both the golf club and golf ball businesses...

  • Page 33
    ... that the Company's sale of the Tour i and Tour ix golf balls infringe nine Acushnet golf ball patents. Acushnet has since dropped one of the patents, but expanded its infringement contentions to allege that seven other models of the Company's golf balls, using Callaway Golf's patented HX surface...

  • Page 34
    ... documentation has been exchanged. On May 8, 2008, Kenji Inaba filed a suit against Callaway Golf Japan in the Osaka District Court in Japan. Inaba has alleged that certain golf balls sold by Callaway Golf Japan with a hex aerodynamic pattern infringe his Japanese utility design patent No. 3,478,303...

  • Page 35
    ...and had been in the private practice of law for over 18 years. During a portion of that period, he provided legal services to the Company. Mr. McCracken serves on the boards of Pro Kids Golf Academy and Learning Center (First Tee of San Diego) and Golf Entertainment International, Ltd. (in which the...

  • Page 36
    ... Development for the Company, overseeing the innovation and advanced design process for the Callaway Golf, Odyssey, Top-Flite and Ben Hogan brands. He began his career at the Company as a research assistant in 1994 and advanced through positions of increasing responsibility in both R&D and Marketing...

  • Page 37
    ... number of holders of record of the Company's common stock was 8,800. The following table sets forth the range of high and low per share sales prices of the Company's common stock and per share dividends for the periods indicated. Year Ended December 31, Period: High 2009 Low Dividend High 2008...

  • Page 38
    ... the closing prices of Callaway Golf Company common stock on December 31, 2004, 2005, 2006, 2007, 2008 and 2009 of 13.50, $13.84, $14.41, $17.43, $9.29 and $7.54, respectively. Purchases of Equity Securities by the Issuer and Affiliated Purchasers In November 2007, the Board of Directors authorized...

  • Page 39
    ... statements, related notes and other financial information appearing elsewhere in this report. 2009 Year Ended December 31, 2008(1) 2007 2006 (In thousands, except per share data) 2005(2) Statement of Operations Data: Net sales ...Cost of sales ...Gross profit ...Selling, general and administrative...

  • Page 40
    ...all stock options granted had an exercise price equal to the Company's closing stock price on the date of grant. Had compensation expense for share-based awards granted to employees and directors been determined consistent with Accounting Standards Codification ("ASC") Topic 718, "Compensation-Stock...

  • Page 41
    ...reduction of sales and cost of sales in the period that the related sales are recorded. Sales returns are estimated based upon historical returns, current economic trends, changes in customer demands and sell-through of products. In addition, from time to time, the Company offers sales programs that...

  • Page 42
    ... time to time offers additional sales program incentive offerings which are also generally short term in nature. Historically the Company's actual costs related to its Preferred Retailer Program and other sales programs have not been materially different than its estimates. Revenues from gift cards...

  • Page 43
    ... impaired asset, the useful life over which cash flows will occur, the timing of the impairment test, and the asset's residual value, if any. To determine fair value, the Company uses its internal cash flow estimates discounted at an appropriate rate, quoted market prices, royalty rates when...

  • Page 44
    ...expected dividend yield, the expected life of an option and the risk-free rate, which is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The Company uses historical data to estimate the expected price volatility, the expected dividend yield...

  • Page 45
    ...LLC ("uPlay"), a developer and marketer of GPS devices that provide accurate on-course measurements utilizing aerial imagery of each golf hole. The Company acquired uPlay in order to form synergies from co-branding these products with the Callaway Golf brand, promote the global distribution of these...

  • Page 46
    ... Top-Flite and Ben Hogan woods, hybrids, irons, wedges and putters as well as Odyssey putters. This segment also includes other golf-related accessories described above and royalties from licensing of the Company's trademarks and service marks as well as sales of pre-owned golf clubs. The golf balls...

  • Page 47
    ... and Malaysia. Similarly, the Company implemented several promotional programs, balancing the adverse effect on the Company's gross margins (gross margins were 36.2% for 2009 compared to 43.6% in 2008) with market share gains in all major golf club product categories. Management believes that this...

  • Page 48
    ... promotions, price reductions, and unfavorable changes in foreign currency rates. These declines were partially offset by cost reductions on golf club component costs as well as an overall improvement in manufacturing efficiencies for both golf clubs and golf balls as a result of the Company's gross...

  • Page 49
    ... 26% for the comparable period of 2008. The dollar decrease in selling expenses was primarily due to cost reductions taken by the Company during 2009, which included decreases of $15.5 million in advertising and promotional activities, $5.1 million in employee costs and commissions and $4.6 million...

  • Page 50
    ...taken on the Company's older irons products that were in the second year of their product lifecycles, primarily X-20 and Big Bertha irons combined with an unfavorable shift in product mix from sales of the more premium Fusion irons during 2008 to sales of lower priced X-series irons during 2009. The...

  • Page 51
    ... to various sales promotions during 2009 and price reductions taken on older Tour Series golf balls. The decrease in sales volumes was affected by fewer golf ball models launched during 2009 compared to 2008 for both the Callaway Golf and Top-Flite brands. Segment Profitability Profitability by...

  • Page 52
    ... expenses related to both the golf club and golf ball segments decreased during the twelve months ended December 31, 2009, compared to the same period in 2008 as a result of cost reductions taken by the Company, primarily related to advertising and promotional activities, employee costs, and...

  • Page 53
    ...% in the year ended December 31, 2008 and 2007. Gross margins were negatively affected by an unfavorable shift in product mix from higher margin woods products to lower margin accessories and other products. These decreases were partially offset by reductions in golf club component costs as a result...

  • Page 54
    ...08 per share) related to costs associated with the implementation of the Company's gross margin improvement initiatives. Golf Clubs and Golf Balls Segments Results for the Years Ended December 31, 2008 and 2007 The Company experienced an increase in net sales during the first half of 2008 primarily...

  • Page 55
    ...price than fairway woods and hybrids. In addition, average selling prices were negatively affected during the year ended December 31, 2008 by planned price reductions on older woods products, primarily on Big Bertha 460 titanium drivers, Fusion Technology drivers, X fairway woods and region specific...

  • Page 56
    ... gross margin was negatively affected by price reductions taken on older woods products, primarily on Big Bertha 460 drivers, Fusion Technology drivers, X fairway woods and the region specific Hyper ERC titanium driver. These decreases in gross margin were partially offset by cost reductions on club...

  • Page 57
    ...same period in 2008 combined with the timing of these sales, in addition to a shift in sales to customers with longer payments terms during the fourth quarter of 2009. The Company's inventory balance also fluctuates throughout the year as a result of the general seasonality of the Company's business...

  • Page 58
    ...stock"). The Company received gross proceeds of $140.0 million and incurred costs of $6.0 million. The terms of the preferred stock provide for a liquidation preference of $100 per share and cumulative dividends from the date of original issue at a rate of 7.50% per annum (equal to an annual rate of...

  • Page 59
    ... 8.6 (1) During the normal course of its business, the Company enters into agreements to purchase goods and services, including purchase commitments for production materials, endorsement agreements with professional golfers and other endorsers, employment and consulting agreements, and intellectual...

  • Page 60
    ... asset acquisition, the Company could be required to pay an additional purchase price of up to $10.0 million based on a percentage of earnings generated from the sale of uPlay products over a period of three years ending on December 31, 2011 (see Note 5 "Business Acquisitions" to the Consolidated...

  • Page 61
    ... Sheet Arrangements During the fourth quarter of 2006, the Company made an investment in Golf Entertainment International Limited ("GEI"), the owner and operator of TopGolf entertainment centers. In connection with this investment, the Company acquired preferred shares of GEI for approximately $10...

  • Page 62
    ... and 2008, there were no outstanding foreign exchange contracts designated as cash flow hedges for anticipated sales denominated in foreign currencies. As part of the Company's risk management procedure, a sensitivity analysis model is used to measure the potential loss in future earnings of market...

  • Page 63
    ...and Supplementary Data The Company's Consolidated Financial Statements as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009, together with the report of our independent registered public accounting firm, are included in this Annual Report on Form 10...

  • Page 64
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Callaway Golf Company Carlsbad, California We have audited the internal control over financial reporting of Callaway Golf Company and its subsidiaries (the "Company") as of December 31, 2009, based on...

  • Page 65
    ...," to be filed with the Commission within 120 days after the end of fiscal year 2009 pursuant to Regulation 14A, which information is incorporated herein by this reference. Item 11. Executive Compensation The Company maintains employee benefit plans and programs in which its executive officers are...

  • Page 66
    ...'s practice was to generally grant stock options at exercise prices equal to the fair market value of the Company's common stock on the date of grant. Promotion Plan. Under the Promotion Plan, the Company granted stock options to golf professionals and other endorsers of the Company's products...

  • Page 67
    ...(Loss) for the years ended December 31, 2009, 2008 and 2007; Notes to Consolidated Financial Statements; and Report of Independent Registered Public Accounting Firm. 2. Financial Statement Schedule. The following consolidated financial statement schedule of Callaway Golf Company and its subsidiaries...

  • Page 68
    ... 6, 2008 (file no. 1-10962). Callaway Golf Company First Amendment to the Officer Employment Agreement, effective as of January 26, 2009, by and between the Company and Thomas Yang, incorporated herein by this reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended...

  • Page 69
    ...herein by this reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 2005, as filed with the Commission on February 27, 2006 (file no. 1-10962). Callaway Golf Company Executive Deferred Compensation Plan, as amended and restated, effective May 6, 2002...

  • Page 70
    ... Callaway Golf Company Executive Deferred Compensation Plans, incorporated herein by this reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 2005, as filed with the Commission on February 27, 2006 (file no. 1-10962). Callaway Golf Company Employee...

  • Page 71
    ...to Exhibit 10.49 to the Company's Current Report on Form 8-K, as filed with the Commission on February 1, 2008 (file no. 1-10962). Third Amendment to Amended and Restated Credit Agreement dated as of February 15, 2007 by and among Callaway Golf Company, Bank of America, N.A. (as Administrative Agent...

  • Page 72
    ...Company and Sanwa Bank California, as Trustee, for the benefit of participating employees, incorporated herein by this reference to Exhibit 10.45 to the corresponding exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, as filed... pursuant to Rule 13a-14(a)...

  • Page 73
    ...(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CALLAWAY GOLF COMPANY By: /s/ GEORGE FELLOWS George Fellows President and Chief Executive Officer Date: February 26, 2010 Pursuant to the...

  • Page 74
    ...information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ GEORGE FELLOWS 3. 4. George Fellows President and Chief Executive Officer Date: February 26, 2010 61

  • Page 75
    ..., whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ BRADLEY J. HOLIDAY 3. 4. Bradley J. Holiday Senior Executive Vice President and Chief Financial Officer Date: February 26, 2010 62

  • Page 76
    ... officers of Callaway Golf Company, a Delaware corporation (the "Company"), does hereby certify with respect to the Annual Report of the Company on Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission (the "10-K Report"), that: (1) the 10-K Report...

  • Page 77
    ... Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2009 and 2008 ...Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007 ...Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008...

  • Page 78
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Callaway Golf Company Carlsbad, California We have audited the accompanying consolidated balance sheets of Callaway Golf Company and subsidiaries (the "Company") as of December 31, 2009 and 2008, ...

  • Page 79
    ... Trust held at market value, 983,275 shares and 1,440,570 shares at December 31, 2009 and 2008, respectively ...Less: Common stock held in treasury, at cost, 1,823,367 shares and 1,768,695 shares at December 31, 2009 and 2008, respectively ...Total Callaway Golf Company shareholders' equity ...Non...

  • Page 80
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) 2009 Year Ended December 31, 2008 2007 Net sales ...Cost of sales ...Gross profit ...Selling expenses ...General and administrative expenses ...Research and development expenses ...Total operating ...

  • Page 81
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2009 2008 2007 Cash flows from...410) Accounts payable and accrued expenses ...(19,713) 20,122 10,341 Accrued employee compensation and benefits ...(5,179) (17,925) 25,158 Accrued warranty expense ...(2,...

  • Page 82
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) (In thousands) Callaway Golf Shareholders Accumulated Other Grantor Treasury Stock Preferred Stock Common Stock Additional Paid-in Unearned Retained Comprehensive Stock Non-controlling Shares Amount...

  • Page 83
    ... designs, manufactures and sells high quality golf clubs (drivers, fairway woods, hybrids, irons, wedges and putters) and golf balls. The Company also sells golf accessories such as golf bags, golf gloves, golf footwear, GPS on-course range finders, golf and lifestyle apparel, golf headwear, eyewear...

  • Page 84
    ... and collectability is reasonably assured. Sales returns are estimated based upon historical returns, current economic trends, changes in customer demands and sell-through of products. The Company also records estimated reductions to revenue for sales programs such as incentive offerings. Sales F-8

  • Page 85
    ...847,000 and $8,672,000 during 2009, 2008 and 2007, respectively. Warranty Policy The Company has a stated two-year warranty policy for its golf clubs. The Company's policy is to accrue the estimated cost of satisfying future warranty claims at the time the sale is recorded. In estimating its future...

  • Page 86
    ...print media. The Company's policy is to expense advertising costs, including production costs, as incurred. Advertising expenses for 2009, 2008 and 2007 were $47,366,000, $56,020,000 and $52,203,000, respectively. Research and Development Costs Research and development costs are expensed as incurred...

  • Page 87
    ... Assets Goodwill and intangible assets consist of goodwill, trade names, trademarks, service marks, trade dress, patents and other intangible assets acquired during the acquisition of Odyssey Sports, Inc., the Top-Flite assets, FrogTrader, Inc., the Tour Golf Group assets, the uPlay, LLC assets and...

  • Page 88
    ... may grant Performance Share Units to certain employees, which are a form of share-based award in which the number of shares ultimately received depends on the Company's performance against specified performance targets over a three-year period from the date of grant. The estimated fair value of the...

  • Page 89
    ... over the performance period, reduced by an estimated forfeiture rate. The Company uses forecasted performance metrics to estimate the number of Performance Share Units to be issued. The Company's performance against the specified performance targets is reviewed quarterly and expense is adjusted...

  • Page 90
    ... of products and consist of Golf Clubs and Golf Balls. The Golf Clubs segment consists primarily of Callaway Golf, Top-Flite and Ben Hogan woods, hybrids, irons, wedges and putters as well as Odyssey putters, pre-owned clubs, GPS on-course range finders, other golf-related accessories and royalties...

  • Page 91
    ... preferred signage rights, rights as the preferred supplier of golf products used or offered for use at TopGolf facilities at prices no less than those paid by the Company's customers, preferred retail positioning in the TopGolf retail stores, access to consumer information obtained by TopGolf...

  • Page 92
    ...LLC ("uPlay"), a developer and marketer of GPS devices that provide accurate on-course measurements utilizing aerial imagery of each golf hole. The Company acquired uPlay in order to form synergies from co-branding these products with the Callaway Golf brand, promote the global distribution of these...

  • Page 93
    ... initiatives designed to improve the Company's business processes and reduce the Company's overall expenses (the "2005 Restructuring Initiatives"). The 2005 Restructuring Initiatives include, among other things, the consolidation of the Callaway Golf, Odyssey, Top-Flite and Ben Hogan selling...

  • Page 94
    ... Information December 31, 2009 2008 (In thousands) Accounts receivable, net: Trade accounts receivable ...Allowance for doubtful accounts ...Inventories: Raw materials ...Work-in-process ...Finished goods ...Property, plant and equipment, net: Land ...Buildings and improvements (1) ...Machinery...

  • Page 95
    ... on internal cash flow estimates discounted at an appropriate rate. During the second half of 2008 and into 2009, general economic and stock market conditions worsened considerably and the Company's stock price declined significantly during this period. During the second quarter of 2009, the Company...

  • Page 96
    ...EBITDA for the previous four quarters then ended must be at least 3.50 times the Company's Consolidated Interest Charges (as defined in the Line of Credit) for such period. Many factors, including unfavorable economic conditions and unfavorable foreign currency exchange rates, can have a significant...

  • Page 97
    ... the years ended December 31, 2009, 2008 and 2007, the Company did not designate any foreign currency exchange contracts as derivatives that qualify for hedge accounting under ASC 815. At December 31, 2009, 2008 and 2007, the notional amounts of the Company's foreign currency exchange contracts used...

  • Page 98
    ... instruments 2009 2008 2007 Foreign currency exchange contracts ... Other income (expense) $(7,594) $(3,251) $(5,979) The net realized and unrealized contractual net losses noted in the table above for the years ended December 31, 2009, 2008 and 2007 were used by the Company to offset actual...

  • Page 99
    ... equivalents of 10,747,000 for the year ended December 31, 2009, related to convertible preferred shares outstanding. There were no convertible preferred shares outstanding in 2008 and 2007. Note 12. Capital Stock Common Stock and Preferred Stock The Company has an authorized capital of 243,000,000...

  • Page 100
    ... the Callaway Golf Company Grantor Stock Trust (the "GST") for the purpose of funding the Company's obligations with respect to one or more of the Company's nonqualified or qualified employee benefit plans. The GST shares are used primarily for the settlement of employee equity-based awards...

  • Page 101
    ... share units and other equity-based awards to the Company's officers, employees, consultants and certain other non-employees who provide services to the Company. All grants under the 2004 Plan are discretionary, although no participant may receive awards in any one year in excess of 2,000,000 shares...

  • Page 102
    ... relating to outstanding stock options for the years ended December 31, 2009, 2008 and 2007, respectively. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The model...

  • Page 103
    ... of $223,000 related to cancelled Restricted Stock awards due to employee terminations. The Company recorded $3,400,000, $2,350,000, and $1,241,000 of compensation expense in connection with shares underlying Restricted Stock Units for the years ended December 31, 2009, 2008 and 2007, respectively...

  • Page 104
    ... employee participants and directors during the years ended December 31, 2009, 2008 and 2007, as well as the related weighted average grant date fair value for each type of award (number of shares are in thousands). # of Shares Granted 2009 2008 2007 Weighted Average Grant-Date Fair Value 2009 2008...

  • Page 105
    ... Callaway Golf Employee Stock Purchase Plan (the "Plan"), participating employees authorize the Company to withhold compensation and to use the withheld amounts to purchase shares of the Company's common stock at 85% of the closing price on the last day of each six-month offering period. During 2009...

  • Page 106
    ... on the profitability of the Company. For the years ended December 31, 2009, 2008 and 2007 there were no discretionary contributions. The Company also has an unfunded, nonqualified deferred compensation plan that is backed by Companyowned life insurance policies. As of October 1, 2009, the Company...

  • Page 107
    ...of a net deferred benefit of $20,000 related to ASC Topic 740-25-6 reserves offset by a net deferred expense of $2,869,000 recorded through current income tax expense for the year ended December 31, 2009. Of the total tax credit carryforwards of $4,772,000 at December 31, 2009, the Company has state...

  • Page 108
    ... tax returns. This difference is generally referred to as an "unrecognized tax benefit." A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): 2009 2008 2007 Balance at January 1 ...Additions based on tax positions related to the current year...

  • Page 109
    ... foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax authorities in its major jurisdictions as follows: Tax Jurisdiction Years No Longer Subject to Audit U.S. federal California (U.S.) Massachusetts (U.S.) Australia Canada Japan Korea United Kingdom...

  • Page 110
    ...2009, the Company filed a complaint in the United States District Court for the District of Delaware, Case No. C.A. 09-131, asserting claims against Acushnet for patent infringement. Specifically, the Company asserts that two golf ball patents acquired from Top Flite are infringed by Acushnet's sale...

  • Page 111
    ... documentation has been exchanged. On May 8, 2008, Kenji Inaba filed a suit against Callaway Golf Japan in the Osaka District Court in Japan. Inaba has alleged that certain golf balls sold by Callaway Golf Japan with a hex aerodynamic pattern infringe his Japanese utility design patent No. 3,478,303...

  • Page 112
    ... 2009, the Company filed suit in the Superior Court for the County of San Diego, case no. 37-2009-00050363-CU-BC-NC, against Corporate Trade International, Inc. ("CTI") seeking damages for breach of contract and for declaratory relief based on the asserted use and transfer of corporate trade credits...

  • Page 113
    ... During the normal course of its business, the Company enters into agreements to purchase goods and services, including purchase commitments for production materials, endorsement agreements with professional golfers and other endorsers, employment and consulting agreements, and intellectual...

  • Page 114
    ...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, hybrids, irons, wedges and putters as well as Odyssey putters, pre-owned clubs, GPS on-course range finders, other golfrelated accessories and royalties...

  • Page 115
    ...975 11,351 35,326 (1) Represents corporate general and administrative expenses and other income (expense) not utilized by management in determining segment profitability. In 2008, the reconciling items include a one-time reversal of $19,922,000 in connection with the Company's termination of a long...

  • Page 116
    The Company's net sales by product category are as follows: Year Ended December 31, 2009 2008 (In thousands) 2007 Net sales Drivers and Fairway Woods ...Irons ...Putters ...Golf Balls ...Accessories and Other ... $223,603 233,985 98,134 180,885 214,192 $950,799 $ 268,286 308,556 101,676 223,075 ...

  • Page 117
    Note 20. Summarized Quarterly Data (Unaudited) 1st Fiscal Year 2009 Quarters 2nd 3rd 4th (In thousands, except per share data) Total Net sales ...Gross profit ...Net income (loss) ...Dividends on convertible preferred stock (Note 3) ...Net income (loss) allocable to common shareholders ...Earnings ...

  • Page 118
    SCHEDULE II CALLAWAY GOLF COMPANY CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2009, 2008 and 2007 Allowance Allowance for for Sales Doubtful Returns Accounts (In thousands) Date Balance, December 31, 2006 ...$ 5,909 $ 8,539 Provision ...22,457 1,519 Write-off, ...

  • Page 119
    ... the land to plantationx or other non-forext uxe. • thix annual report ix printed on McCoy xilk from Sappi Paper. the cover ix on 100# cover weight and 8 pagex of the text are peinted on 100# text weight. thix paper ix Forext Stewardxhip Council certified enxuring rexponxible forext management...

  • Page 120
    C A L L AWAY G O L F C O M PA N Y 218 0 Ruther ford Road Carl sbad , C A 92 0 0 8 -7328 www.call awaygolf.com