Callaway 2009 Annual Report Download - page 90

Segment Information
The Company’s operating segments are organized on the basis 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 from licensing of the Company’s trademarks and service marks. The
Golf Balls segment consists primarily of Callaway Golf and Top-Flite golf balls that are designed, manufactured
and sold by the Company. The Company also discloses information about geographic areas. This information is
presented in Note 18.
Diversification of Credit Risk
The Company’s financial instruments that are subject to concentrations of credit risk consist primarily of
cash equivalents, trade receivables and foreign currency exchange contracts.
The Company historically invests its excess cash in money market accounts and short-term U.S. government
securities and has established guidelines relative to diversification and maturities in an effort to maintain safety
and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and
interest rates.
The Company operates in the golf equipment industry and primarily sells its products to golf equipment
retailers (including pro shops at golf courses and off-course retailers), sporting goods retailers and mass
merchants, directly and through wholly-owned domestic and foreign subsidiaries, and to foreign distributors. The
Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no
collateral from these customers. The Company maintains reserves for estimated credit losses, which it considers
adequate to cover any such losses. Managing customer-related credit risk is more difficult in regions outside of
the United States. During 2009, 2008 and 2007, approximately 50%, 50% and 47%, respectively, of the
Company’s net sales were made in regions outside of the United States. Prolonged unfavorable economic
conditions in the United States or in the Company’s international markets could significantly increase the
Company’s credit risk.
From time to time, the Company enters into foreign currency forward contracts and put or call options for
the purpose of hedging foreign exchange rate exposures on existing or anticipated transactions. In the event of a
failure to honor one of these contracts by one of the banks with which the Company has contracted, management
believes any loss would be limited to the exchange rate differential from the time the contract was made until the
time it was settled.
Note 3. Preferred Stock Offering
On June 15, 2009, the Company sold 1,400,000 shares of its 7.50% Series B Cumulative Perpetual
Convertible Preferred Stock, $0.01 par value (the “preferred stock”). The Company received gross proceeds of
$140,000,000 and incurred costs of $6,031,000, which were recorded as an offset to additional paid in capital in
the consolidated condensed statement of shareholders’ equity. 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 $7.50 per share), subject to adjustment in certain circumstances. As
of December 31, 2009, the liquidation preference would have been $140,438,000. Dividends on the preferred
stock are payable quarterly in arrears subject to declaration by the Board of Directors and compliance with the
Company’s line of credit and applicable law.
The preferred stock is generally convertible at any time at the holder’s option into common stock of the
Company at an initial conversion rate of 14.1844 shares of Callaway’s common stock per share of preferred
stock, which is equivalent to an initial conversion price of approximately $7.05 per share. Based on the initial
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