Callaway 2013 Annual Report Download

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2013 ANNUAL REPORT

Table of contents

  • Page 1
    2013 ANNUAL REPORT

  • Page 2
    ... take our word for it: Big Bertha Alpha: "I'm a totally different golfer than last year at this time. I have Callaway equipment now, the equipment's been amazing. I absolutely love the new equipment." -Patrick Reed, PGA TOUR Pro Big Bertha Alpha: "This year I have the best driver I've ever hit...It...

  • Page 3
    ... -Nicolas Colsaerts, PGA TOUR Pro X2 Hot Irons: "The ball holds its line and just stays there. Long is an understatement with X2 Hot." -Harris English, PGA TOUR Pro X2 Hot Fairway Wood: "Long is always better, and X2 Hot is definitely longer." -Gary Woodland, PGA TOUR Pro X2 Hot Hybrid: "This thing...

  • Page 4
    ... in 2012. In 2013, our global sales and marketing team focused on building on the strengths of the Callaway and Odyssey brands, and did so in a more contemporary, compelling manner for today's golf business. We are a leader in the golf industry in using social media to drive our brand and to connect...

  • Page 5
    ... to return to profitability in 2014 and I look forward to updating you on our results as the year progresses. first-of-its-kind Gravity Core technology allows golfers to adjust the vertical Center of Gravity to dial in spin independent of loft. Furthermore, the Speed Regime series of golf balls has...

  • Page 6
    ... Company; Partner, Zeughauser Group LLC; Retired Former Partner, Gibson, Dunn & Crutcher LLP Oliver G. Brewer III President and Chief Executive Officer Callaway Golf Company John C. Cushman, III Co-Chairman, Cushman & Wakefield, Inc. Yotaro Kobayashi Chairman, International University of Japan...

  • Page 7
    ... The 2014 Annual Meeting of Shareholders Investor Relations Callaway Golf Company 2180 Rutherford Road Carlsbad, CA 92008-7328 760.931.1771 [email protected] Alan Hocknell Senior Vice President, Research and Development Wednesday, May 14, 2014 Callaway Golf Company Headquarters 2180...

  • Page 8
    ...affected by unfavorable economic or market conditions or weather), changes in foreign currency exchange rates, as well as the general risks and uncertainties applicable to the Company and its business. For details concerning these and other risks and uncertainties, see Part I, Item IA, "Risk Factors...

  • Page 9
    2013 FINANCIAL RESULTS

  • Page 10
    (This page intentionally left blank)

  • Page 11
    ... number 1-10962 Callaway Golf Company (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 95-3797580 (I.R.S. Employer Identification No.) 2180 Rutherford Road Carlsbad, CA 92008 (760) 931-1771 (Address, including zip code...

  • Page 12
    ...-FT Tour-Fusion-Gems-Great Big BerthaHeavenwood-HX-HX Diablo-Hex Aerodynamics-Hex Black Tour-Hex Chrome-Hex Hot-Hex Diablo-Hex Solaire-Hex Warbird-IMIX-Legacy-Legacy Aero-Legend-Mack Daddy 2-Marksman-Metal-X-Number One Putter in Golf-OdysseyOptiFit-ORG.14-ProType-ProType Black-Razr Fit-Razr Fit...

  • Page 13
    CALLAWAY GOLF COMPANY INDEX PART I. Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business ...Risk Factors ...Unresolved Staff Comments ...Properties ...Legal Proceedings...Mine Safety Disclosures ...PART II. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Market for ...

  • Page 14
    (This page intentionally left blank)

  • Page 15
    ... quality golf clubs (drivers, fairway woods, hybrids, irons, wedges and putters) and golf balls, and also sells golf accessories (such as golf apparel and footwear, golf bags, golf gloves, headwear, towels, umbrellas, eyewear and travel gear) under the Callaway Golf, Odyssey and Strata brand names...

  • Page 16
    ... 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. Irons. This product category includes sales of the Company's irons and wedges, which are sold under the Callaway Golf brand...

  • Page 17
    ...club and golf ball manufacturing, see "Risk Factors" contained in Item 1A. Sales and Marketing Sales in the United States Of the Company's total net sales, approximately 48% was derived from sales to customers within the United States in 2013, and approximately 47% in both 2012 and 2011. The Company...

  • Page 18
    ... Golf equipment. The Company also offers the full line of Callaway Golf and Odyssey products, including drivers, fairway woods, hybrids, irons, putters, golf balls, and golf-related accessories, through its websites www.callawaygolf.com and www.odysseygolf.com. Advertising and Promotion The Company...

  • Page 19
    ... outside the United States. The Company believes that it is a technological leader in the golf ball market. For both golf clubs and golf balls, the Company generally competes on the basis of technology, quality, performance, customer service and price. In order to gauge the effectiveness of the...

  • Page 20
    ... "Risk Factors" contained in Item 1A. Licensing The Company, in exchange for a royalty fee, licenses its trademarks and service marks to third parties for use on products such as golf apparel and footwear, golf gloves, umbrellas, prescription eyewear, and practice aids. With respect to its line of...

  • Page 21
    ... for umbrellas exclusively to Costco Wholesale Corp., and iv) Walman Optical for a line of prescription Callaway eyewear. Employees As of December 31, 2013 and 2012, the Company and its subsidiaries had approximately 1,700 full-time and parttime employees. The Company employs temporary manufacturing...

  • Page 22
    ... officers will be contained in the Company's definitive Proxy Statement in connection with the 2014 Annual Meeting of Shareholders. In addition, copies of the employment agreements for all the executive officers are included as exhibits to this report. Access to SEC Filings through Company Website...

  • Page 23
    ... of operations, financial condition and cash flows. 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 purchases of golf products...

  • Page 24
    ... in which the Company conducts business. Foreign currency fluctuations can also affect the prices at which products are sold in the Company's international markets. The Company therefore adjusts its pricing based in part upon fluctuations in foreign currency exchange rates. Significant unanticipated...

  • Page 25
    ... 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 26
    ... alternative suppliers at a reasonable cost or without significant disruption to its business. A significant disruption in the operations of the Company's golf club assembly and golf ball manufacturing and assembly facilities could have a material adverse effect on the Company's sales, profitability...

  • Page 27
    ... than 17% of the Company's consolidated revenues in 2013, and 14% in both 2012 and 2011. On a segment basis, in 2013, the top five golf club and golf ball customers accounted for approximately 17% and 27% of the Company's total consolidated golf club and golf ball sales, respectively. A loss of one...

  • Page 28
    ...'s customers, to defer purchasing additional golf equipment until the Company's new products are available. Such deferments could have a material adverse effect upon sales of the Company's current products or result in closeout sales at reduced prices. The seasonality of the Company's business could...

  • Page 29
    ...affected. The Company's sales and business could be materially and adversely affected if professional golfers do not endorse or use the Company's products. The Company establishes relationships with professional golfers in order to evaluate and promote Callaway Golf and Odyssey branded products. The...

  • Page 30
    ... market or manufacture counterfeits and "knockoff" products. The Company asserts its rights against infringers of its copyrights, patents, trademarks, and trade dress. However, these efforts may not be successful in reducing sales of golf products by these infringers. Additionally, other golf club...

  • Page 31
    ... find their way to unauthorized outlets or distribution channels. This "gray market" for the Company's products can undermine authorized retailers and foreign wholesale distributors who promote and support the Company's products, and can injure the Company's image in the minds of its customers and...

  • Page 32
    .... The Company's principal executive offices and domestic operations are located in Carlsbad, California. The Company has four buildings that are utilized in its Carlsbad operations, which are comprised of corporate offices and the Company's performance center, as well as manufacturing, research and...

  • Page 33
    ... club and golf ball businesses. The Company believes that its facilities currently are adequate to meet its requirements. Item 3. Legal Proceedings The information set forth in Note 13 "Commitments and Contingencies," to the Notes to Consolidated Financial Statements included in this Annual Report...

  • Page 34
    ... Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The Company's common stock is listed, and principally traded, on the New York Stock Exchange ("NYSE"). The Company's symbol for its common stock is "ELY." As of January 31, 2014, the number...

  • Page 35
    ... prices of Callaway Golf Company common stock on December 31, 2008, 2009, 2010, 2011, 2012 and 2013 of $9.29, $7.54, $8.07, $5.53, $6.50 and $8.43, respectively. Purchases of Equity Securities by the Issuer and Affiliated Purchasers In November 2007, the Company's Board of Directors authorized...

  • Page 36
    ... information appearing elsewhere in this report. Years Ended December 31, 2013 (1)(2) 2012 (1)(2)(3)(4) 2011 (4)(5)(6)(7)(8) 2010 (4)(6)(7) 2009 (4)(6) (In thousands, except per share data) Statement of Operations Data: Net sales ...$ 842,801 Cost of sales ...528,043 Gross profit ...314...

  • Page 37
    ... of 2012, in an effort to simplify the Company's operations and increase focus on the Company's core Callaway and Odyssey business, the Company sold certain assets related to the Top-Flite and Ben Hogan brands, including trademarks, service marks and certain other intellectual property for net cash...

  • Page 38
    ... staff training. Under this program, qualifying retailers can earn either discounts or rebates based upon the amount of product purchased. Discounts are applied and recorded at the time of sale. For rebates, the Company accrues an estimate of the rebate at the time of sale based on the customer...

  • Page 39
    ... be material. The deferred revenue associated with outstanding gift cards decreased to $1.0 million at December 31, 2013 from $1.1 million at December 31, 2012. Revenues from course credits in connection with the use of the Company's uPro GPS devices are deferred when purchased and recognized on...

  • Page 40
    ... "Cost Reduction Initiatives") that were announced in July 2012, the Company committed to a plan to transition its integrated device business to a thirdparty based model and determined that it would no longer be using or enforcing the trademarks and technology acquired from the uPlay LLC acquisition...

  • Page 41
    ... and penalties, for any uncertain tax positions taken or expected to be taken in an income tax return. The Company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available. Historically, additional taxes paid as a result of the resolution of the...

  • Page 42
    ... Golf woods, hybrids, irons and wedges, and 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 segment consists of Callaway Golf...

  • Page 43
    ... of its golf ball and golf club manufacturing platforms. These improvements not only reflect the continued progress of the Company's turnaround plan, but also the increased hard goods market share and brand momentum the Company experienced in 2013. The Company's net sales increased approximately...

  • Page 44
    ... in sales of woods and irons resulting from the successful performance of the Company's X Hot products which were introduced during the current year. This increase was offset by the sale of the Top-Flite and Ben Hogan brands in 2012 combined with a decline in sales of the Company's accessories and...

  • Page 45
    ...a favorable shift in sales mix from sales of lower margin golf accessories to increased sales of higher margin golf club products in 2013 compared to 2012; (ii) a decline in charges associated with the Company's Cost Reduction Initiatives; and (iii) improved manufacturing efficiencies resulting from...

  • Page 46
    ...Flite and Ben Hogan brands ...- 6.6 Total ...$ (16.6) $ (48.5) Golf Clubs Segment Net sales information for the golf clubs segment by product category is summarized as follows (dollars in millions): Years Ended December 31, 2013 2012 Growth/(Decline) Dollars Percent Net sales: Woods...$ 256.5 Irons...

  • Page 47
    ... sale of the Top-Flite brand in 2012 partially offset by an increase in sales of Callaway golf balls of $12.3 million during 2013 compared to the prior year. The decline in average selling prices resulted from a shift in product mix to sales of lower priced golf ball models in 2013 compared to sales...

  • Page 48
    ... an increase in club component costs due to more expensive materials and technology incorporated into the X Hot family of woods and White Hot Pro putters, in addition to an unfavorable impact of foreign currency exchange rates. Pre-tax income in the Company's golf balls operating segment improved to...

  • Page 49
    ... Company's business; and (v) charges related to the impairment of certain golf ball patents. In addition, gross margin was negatively affected by increased promotional activity during 2012 primarily on in-line drivers, fairway woods and irons products, as well as an increase in club component costs...

  • Page 50
    ...-tax gain on the sale of Top-Flite and Ben Hogan brands ...6.6 - (24.7) Pre-tax GOS charges...- Pre-tax gain on the sale of buildings...- 6.2 (4.9) (81.6) Income tax provision(1) ...Total charges...$ (53.4) $ (122.9) (1) The Company's income tax provision for 2012 and 2011 is affected by a valuation...

  • Page 51
    ... lower priced Top-Flite balls to higher priced Callaway golf balls combined with the successful current year launch of the HX Chrome and HX Black Tour balls. Segment Profitability Profitability by operating segment is summarized as follows (dollars in millions): Years Ended December 31, 2012 2011...

  • Page 52
    ...closeout activity and increased club component costs as compared to the same period in 2011. Pre-tax loss in the Company's golf balls operating segment increased to $15.0 million for 2012 from $12.7 million for 2011. This increase in pre-tax loss was primarily attributable to a decrease in net sales...

  • Page 53
    ...from operations in 2009 through 2013. During the second half of 2012, the Company implemented significant changes to its business, including among other things, steps designed to increase product sales as well as initiatives designed to reduce the Company's manufacturing costs and operating expenses...

  • Page 54
    ... the Company's assessment of market conditions and buying opportunities. During 2013, the Company repurchased approximately 56,000 shares of its common stock under the November 2007 repurchase program at an average cost per share of $6.50 for a total cost of $0.4 million. The Company acquired these...

  • Page 55
    ... amounts listed as a result of the variable nature of these obligations. In addition, the Company also enters into unconditional purchase obligations with various vendors and suppliers of goods and services in the normal course of operations through purchase orders or other documentation or that are...

  • Page 56
    ... of the operating results of the Company's international subsidiaries into U.S. dollars for financial reporting purposes. As part of its strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses derivative financial instruments...

  • Page 57
    ... the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2013. Management's Report on Internal Control over Financial Reporting. The Company's management...

  • Page 58
    The effectiveness of the Company's internal control over financial reporting as of December 31, 2013 has been audited by Deloitte & Touche LLP, the Company's independent registered public accounting firm, as stated in its report which is included herein. Item 9B. Other Information None. 44

  • Page 59
    ... 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, 2013, based on criteria established in Internal Control-Integrated Framework (1992...

  • Page 60
    ... Company maintains employee benefit plans and programs in which its executive officers are participants. Copies of certain of these plans and programs are set forth or incorporated by reference as Exhibits to this report. Information required by Item 11 will be included in the Company's definitive...

  • Page 61
    ... included in the Company's definitive Proxy Statement under the caption "Compensation of Executive Officers and Directors-Compensation Committee Interlocks and Insider Participation," "Certain Relationships and Transactions with Related Persons," and "Board of Directors and Corporate Governance" to...

  • Page 62
    ...in furnishing any such exhibit. All such requests should be directed to the Company's Investor Relations Department at Callaway Golf Company, 2180 Rutherford Road, Carlsbad, CA 92008. 2.1 Asset Purchase Agreement among American Sports Licensing, Inc. and Dick's Sporting Goods, Inc., collectively the...

  • Page 63
    ... filed with the Commission on March 5, 2013 (file no. 1-10962). Officer Employment Agreement, effective as of May 1, 2012, by and between Callaway Golf Company and Bradley J. Holiday, incorporated herein by this reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, as filed with the...

  • Page 64
    ... Agreement for Officers, incorporated herein by this reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the Commission on March 10, 2005 (file no. 1-10962). Callaway Golf Company 1995 Employee Stock Incentive Plan (As Amended...

  • Page 65
    ... and Security Agreement, dated as of June 30, 2011, among Callaway Golf Company, Callaway Golf Sales Company, Callaway Golf Ball Operations, Inc., Callaway Golf Canada Ltd., Callaway Golf Interactive, Inc., Callaway Golf International Sales Company, Bank of America, N.A., as administrative agent and...

  • Page 66
    ...of the Sarbanes-Oxley Act of 2002.†Certification of Bradley J. Holiday pursuant to Rule 13a-14(a) and 15d-14(a), as adopted....†Certification of Oliver G. Brewer III and Bradley J. Holiday pursuant to 18 U.S.C. Section 1350, as adopted pursuant ... Taxonomy Extension Definition Linkbase Document ...

  • Page 67
    ... by the undersigned, thereunto duly authorized. CALLAWAY GOLF COMPANY By: /S/ OLIVER G. BREWER III Oliver G. Brewer III President and Chief Executive Officer Date: February 27, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following...

  • Page 68
    Exhibit 31.1 CERTIFICATION I, Oliver G. Brewer III, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Callaway Golf Company; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the ...

  • Page 69
    ..., whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. (b) /S/ BRADLEY J. HOLIDAY Bradley J. Holiday Senior Executive Vice President and Chief Financial Officer Date: February 27, 2014

  • Page 70
    ... 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, 2013, as filed with the Securities and Exchange Commission (the "10-K Report"), that: (1) the 10-K Report...

  • Page 71
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets as of December 31, 2013 and 2012...Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011...Consolidated Statements of Comprehensive ...

  • Page 72
    ... 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, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss...

  • Page 73
    ...treasury, at cost, 967,089 shares and 1,267,436 shares at (14,848) December 31, 2013 and 2012, respectively...(11,091) Total Callaway Golf Company shareholders' equity...284,619 Non-controlling interest in consolidated entity (Note 10) ...- Total shareholders' equity ...284,619 Total liabilities and...

  • Page 74
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2013 2012 2011 Net sales ...$ 842,801 Cost of sales ...528,043 Gross profit ...Selling expenses...General and administrative expenses...Research and development expenses ......

  • Page 75
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Year Ended December 31, 2013 2012 2011 Net loss...$ (18,921) $(122,946) $(171,820) Other comprehensive income (loss), net of tax: ...(2,593) Foreign currency translation adjustments...699 507 Comprehensive ...

  • Page 76
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 2013 Year Ended December 31, 2012 2011 Cash flows from operating activities: Net loss ...Adjustments to reconcile net loss to net cash (used in) provided by Depreciation and amortization ...Impairment charges ...Deferred ...

  • Page 77
    ... stock and stock options...- Employee stock purchase plan...- Stock dividends...- Cash dividends...- Adjustment of grantor stock trust shares to - Equity adjustment from foreign currency - Change in non-controlling interest ...- Net loss ...- Balance, December 31, 2011...1,400 Preferred stock to...

  • Page 78
    ... high quality golf clubs (drivers, fairway woods, hybrids, irons, wedges and putters) and golf balls. The Company also sells golf-related accessories such as golf apparel and footwear, golf bags, golf gloves, golf headwear, travel gear, eyewear, golf towels and umbrellas. The Company generally sells...

  • Page 79
    ...outstanding gift cards decreased to $999,000 at December 31, 2013 from $1,141,000 at December 31, 2012. The amounts are recorded in accounts payable and accrued expenses on the accompanying consolidated balance sheets. Revenues from course credits in connection with the use of the Company's uPro GPS...

  • Page 80
    ...and other liabilities measured at their fair value. Advertising Costs The Company advertises primarily through television and print media. The Company's policy is to expense advertising costs, including production costs, as incurred. Advertising expenses for 2013, 2012 and 2011 were $53,707,000, $65...

  • Page 81
    ...2013 2012 (In thousands) 2011 Beginning balance ...$ 6,544 $ 7,263 $ 9,411 Provision ...6,798 2,830 2,028 (3,549) (4,176) Write-off of uncollectible amounts, net of recoveries...(1,687) Ending balance ...$ 11,655 $ 6,544 $ 7,263 Inventories Inventories are valued at the lower of cost or fair market...

  • Page 82
    ...the estimate of fair value a write-down is recorded. To determine fair value, the Company uses its internal discounted cash flow estimates, quoted market prices, royalty rates when available and independent appraisals when appropriate. Intangible assets that are determined to have definite lives are...

  • Page 83
    ... based on the estimated fair value of the award on the date of grant. The estimated fair value is determined based on the closing price of the Company's common stock on the award date multiplied by the number of shares underlying the restricted stock awarded. Total compensation expense is recognized...

  • Page 84
    ...of Callaway Golf woods, hybrids, irons, wedges and putters as well as Odyssey putters, pre-owned clubs, golf-related accessories and royalties from licensing of the Company's trademarks and service marks. The golf balls segment consists of Callaway Golf golf balls that are designed, manufactured and...

  • Page 85
    ... the Callaway and Odyssey brands and demand creation initiatives. In connection with these initiatives, during 2012, the Company recognized net pre-tax charges of $1,012,000, of which $473,000 and $539,000 were recognized in cost of sales and operating expenses, respectively. In 2011, the Company...

  • Page 86
    ... business to a third-party based model; and (iv) the reorganization of the Company's golf ball manufacturing supply chain, including the sale and lease-back of the Company's ball manufacturing facility in Chicopee, Massachusetts (Note 7), and the write-off of certain patents related to the Top-Flite...

  • Page 87
    ..., plant and equipment related to uPro devices, and an impairment charge of $5,156,000 related to intangible assets and goodwill related to the uPlay, LLC acquisition (see Note 8); and • $14,303,000 related to the reorganization of the Company's golf ball manufacturing supply chain. (2) The pre-tax...

  • Page 88
    Asset-Based Revolving Credit Facility The Company has a Loan and Security Agreement with Bank of America N.A. (as amended, the "ABL Facility") which provides a senior secured asset-based revolving credit facility of up to $230,000,000, comprised of a $158,333,000 U.S. facility (of which $20,000,000 ...

  • Page 89
    ... was in compliance with these covenants as of December 31, 2013. Note 5. Preferred Stock In August 2012, the Company exchanged 982,361 shares of its outstanding 7.50% Series B Cumulative Perpetual Convertible Preferred Stock, $0.01 par value (the "preferred stock") for 5,866,821 shares of common...

  • Page 90
    ... in cost of sales to mark the building down to its estimated selling price, net of commissions, fees and estimated environmental remediation costs. The Company has leased back a reduced portion of the square footage that it believes is adequate for its ongoing golf ball operations. The Company has...

  • Page 91
    ... of operations for the years ended December 31, 2012 and 2011. During 2012, the Company sold certain assets related to the Top-Flite brand, including world-wide trademarks and service marks for net cash proceeds of $19,900,000, in addition to the Ben Hogan brand including trademarks, service marks...

  • Page 92
    ... equipment and inventory located at the Suntech manufacturing facility, and was recognized in cost of sales within the Company's golf balls operating segment. Due to the nature of the arrangement, as well as the controlling influence the Company had in the Suntech operations through July 2013...

  • Page 93
    ..., net: Trade accounts receivable...$ 111,192 (7,334) Allowance for sales returns ...Allowance for doubtful accounts...(11,655) $ 92,203 Inventories: Raw materials ...$ 56,104 Work-in-process...328 Finished goods ...207,060 $ 263,492 Property, plant and equipment, net: Land ...$ 7,452 Buildings and...

  • Page 94
    The expense (benefit) for income taxes is comprised of (in thousands): Years Ended December 31, 2013 2012 2011 Current tax provision (benefit): Federal ...$ 195 $ (357) $ 19,908 State ...382 130 580 Foreign ...6,487 6,804 4,964 7,064 6,577 25,452 Deferred tax expense (benefit): (1,...

  • Page 95
    ... a valuation allowance is required under such rules, the Company considers all available positive and negative evidence, including prior operating results, the nature and reason for any losses, its forecast of future taxable income, and the dates on which any deferred tax assets are expected to...

  • Page 96
    ... result, in 2011, the Company recorded a $52,455,000 increase to income tax expense in order to establish a valuation allowance against its U.S. deferred tax assets and discontinued recognizing income tax benefits related to its U.S. net operating losses. At December 31, 2013 and 2012, the valuation...

  • Page 97
    ... to have a material impact on its results of operations or its financial position. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. For the years ended December 31, 2013, 2012 and 2011, the Company recognized tax expense of approximately $229,000...

  • Page 98
    ...golf equipment under the Cleveland and Cleveland Golf trademarks ("Cleveland Golf"), filed a complaint against Callaway Golf Company in the United States District Court - Central District of California (Case 8:13-cv-01642). The Complaint alleges that Callaway's use on its Callaway branded Mack Daddy...

  • Page 99
    ... under operating leases with initial or remaining terms of one year or more totaled $33,015,000, net of sublease payments of $4,703,000 at December 31, 2013. Unconditional Purchase Obligations During the normal course of its business, the Company enters into agreements to purchase goods and services...

  • Page 100
    ... market conditions and buying opportunities. During 2013, the Company repurchased approximately 56,000 shares of its common stock at an average cost per share of $6.50, for a total cost of $364,000. The Company acquired these shares to satisfy the Company's tax withholding obligations in connection...

  • Page 101
    ... tax withholding obligations in connection with the settlement of employee equity awards. In November 2013, the Company redeemed 300 shares of it's Series B Cumulative Perpetual Convertible Preferred Stock for cash (see Note 4). Grantor Stock Trust The Callaway Golf Company Grantor Stock Trust (the...

  • Page 102
    ...the years ended December 31, 2013, 2012 and 2011, 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 uses various assumptions, including a risk...

  • Page 103
    ...awarded under the 2004 Plan and the 2013 Directors Plan are recorded at the Company's closing stock price on the date of grant. Restricted stock units generally vest at the end of a three year period. At December 31, 2013, 2012 and 2011, the weighted average grant-date fair value of restricted stock...

  • Page 104
    ... fair value on the date of grant using the Black Scholes option-pricing model. SARs are subsequently remeasured at each interim reporting period based on a revised Black Scholes value until they are exercised. SARs vest over a three year period. As of December 31, 2013, 2012 and 2011, the Company...

  • Page 105
    ...): 2013 2012 2011 Cost of sales...$ 473 Operating expenses...7,711 Total cost of employee share-based compensation included in loss before income tax $ 8,184 $ 276 6,874 $ 7,150 $ 424 10,882 $ 11,306 In 2010, in connection with an employment agreement with a former executive officer of...

  • Page 106
    ... the net book value of these patents (see Note 8). In the fourth quarter of 2011, the Company conducted an impairment test on goodwill related to its reporting unit in Australia. Due to the negative impact of significant flooding and inclement weather as well as a decline in economic conditions in...

  • Page 107
    ... of the operating results of the Company's international subsidiaries into U.S. dollars for financial reporting purposes. As part of its strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses derivative financial instruments...

  • Page 108
    ... of Callaway Golf woods, hybrids, irons and wedges, Odyssey putters, pre-owned clubs, golf apparel and footwear, golf bags, golf gloves, travel gear, headwear and other golf-related accessories, as well as royalties from licensing of the Company's trademarks and service marks. The golf balls segment...

  • Page 109
    ... by the Company's operating segments from the restructuring initiatives discussed in Note 3 (in thousands): Year Ended December 31, 2013 Golf Clubs Golf Balls Corporate G&A(2) Total Cost Reduction Initiatives...$ 6,395 $ 6,973 $ 3,188 $ 16,556 Year Ended December 31, 2012 Golf Clubs Golf Balls...

  • Page 110
    ... the net book value of the Company's golf ball manufacturing facility in Chicopee, Massachusetts (see Note 7). The Company's net sales by product category are as follows: Years Ended December 31, 2013 2012 (In thousands) 2011 Net sales: Woods...$ 256,444 Irons...181,842 Putters...89,559 Golf Balls...

  • Page 111
    ...the Company operates. Revenues are attributed to the location to which the product was shipped. Long-lived assets are based on location of domicile. Long-Lived Assets (excluding deferred tax assets) Sales (In thousands) 2013 United States...$ 401,478 Europe...121,477 Japan ...161,598 Rest of Asia...

  • Page 112
    ... recognized an after-tax gain of $4,069,000 ($0.06 per share) in connection with the sale of the Top-Flite and Ben Hogan brands (see Note 8). (5) During the second, third and fourth quarters of 2012, the Company recognized after-tax charges of $2,855,000 ($0.04 per share), $21,576,000 ($0.32 per...

  • Page 113
    ... that easy. The early word on SR - it's awesome. "The new golf ball is awesome. The SR3 Ball that I've been using, I was able to use one ball every round...Whatever technology you did to that ball it is the way to go." - Patrick Reed "Speed Regime marks the first time we've customized aerodynamics...

  • Page 114