Callaway 2014 Annual Report Download

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ANNUAL
REPORT

Table of contents

  • Page 1
    ANNUAL REPORT

  • Page 2
    ...Driver was unveiled in 1991 the name has stood for innovation and peak performance. Our current Big Bertha metal woods and irons follow the same path, incorporating a variety of cutting edge performance technologies that make it easier to launch the ball higher, longer and straighter. From Tour pros...

  • Page 3
    ... our new XR line of Drivers, Fairway Woods, Hybrids and Irons. Our R&D team dug deep to mine additional speed from every potential component. They succeeded with optimized clubhead aerodynamics, advanced clubface construction and more explosive shaft dynamics, all of which unite to make your ball go...

  • Page 4
    ... XR clubs and Chrome Soft golf balls are true game-changers. XR clubs are engineered to help players generate faster ball speed for more distance via better aerodynamics, improved face technology, and the addition of cup face technology in cavity back irons. At the same time, Chrome Soft golf balls...

  • Page 5
    2014 technology represents a significant growth opportunity for us in both sales and profitability. We are also proud of the 18 gold medals awarded to Callaway woods, irons, wedges and Odyssey putters by the well-respected Golf Digest Hot List - more golds than any other manufacturer by a wide ...

  • Page 6
    ... Armacost Chairman Emeritus, SRI International Ronald S. Beard Chairman of the Board, Callaway Golf 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...

  • Page 7
    ...Executive Officer President, Europe, Middle East and Africa Mark F. Leposky S E N I OR MANAG E M E N T Oliver G. Brewer III President and Chief Executive Officer Senior Vice President, Global Operations Brian P. Lynch Senior Vice President, General Counsel and Corporate Secretary Callaway Golf...

  • Page 8
    ... the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014. FORWARD - LOOKING INFORMATION Statements made in the letter to shareholders that relate to future plans, events, financial results, performance, or growth, including statements relating to future golf ball sales...

  • Page 9
    2014 FINANCIAL RESULTS

  • Page 10

  • Page 11
    ... company (as defined in Rule 12b-2 of the Act). Yes As of June 30, 2014, the aggregate market value of the Registrant's common stock held by nonaffiliates of the Registrant was $642,454,268 based on the closing sales price of the Registrant's common stock as reported on the New York Stock Exchange...

  • Page 12
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  • Page 13
    ... or increased costs in the supply of components needed to manufacture the Company's products or in manufacturing the Company's products, including the Company's dependence on a limited number of suppliers for some of its products; adverse weather conditions and seasonality; any rule changes or...

  • Page 14
    ... Core-Great Big Bertha-Heavenwood-Hex Aerodynamics-Hex Black Tour-Hex Chrome-Hex Diablo-Hex Pro-Hex Solaire-Hex Warbird-HX-HX Bite-HX Diablo-Hyper Speed Face-IMIX-Ion X-Jailbird-Kings of Distance-Legacy-Longer From Everywhere-Mack DaddyMarksman-Metal-X-Number One Putter in Golf-Odyssey-Odyssey Works...

  • Page 15
    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. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases ...

  • Page 16
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 17
    ..., irons and wedges and Odyssey putters. This segment also includes other golf-related accessories, royalties from licensing of the Company's trademarks and service marks and sales of pre-owned golf clubs. The golf balls segment consists of Callaway Golf balls that are designed, manufactured and...

  • Page 18
    ...service marks on products including golf apparel and footwear, golf gloves, umbrellas, prescription eyewear and practice aids. Product Design and Development Product design at the Company is a result of the integrated efforts of its brand management, research and development, manufacturing and sales...

  • Page 19
    ...a set of golf clubs that fits a golfer's personal specifications. The Company believes that offering golfers the opportunity to increase performance with custom club specifications increases sales and promotes brand loyalty. The Company maintains various sales programs including a Preferred Retailer...

  • Page 20
    ... and Online Store The Company sells certified pre-owned golf products in addition to golf-related accessories through its website www.callawaygolfpreowned.com. The Company generally acquires the pre-owned products through the Company's Trade In! Trade Up! program, which gives golfers the opportunity...

  • Page 21
    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 Company's response to such factors, management receives and evaluates Company-generated market trends for U.S. ...

  • Page 22
    ... eyewear and practice aids. With respect to its line of golf apparel, the Company has current licensing arrangements with Perry Ellis International for a complete line of men's and women's apparel for distribution in certain retail channels in the United States, Canada, Latin America, Europe...

  • Page 23
    ..., Research and Development Senior Vice President, General Counsel & Corporate Secretary Senior Vice President, Global Operations President, East Asia Managing Director, Europe, Middle East and Africa Oliver G. Brewer III is a Director and President and Chief Executive Officer of the Company and...

  • Page 24
    ...President Asia Marketing and Business Development, General Manager, ERC International and Director of Advertising and Promotion. Mr. Boezeman has a Bachelor of Business Administration in International Business from the University of Hawaii. Neil Howie is President, Europe, Middle East and Africa and...

  • Page 25
    ... prolonged economic downturn could adversely affect the Company's 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 26
    ... of the Rules of Golf below) or its new products will not achieve sufficient market success to compensate for the usual decline in sales experienced by products already in the market. Second, the Company's research and development and supply chain groups face constant pressures to design, develop...

  • Page 27
    ...(2) the quantity of the different lofts in each driver model, and (3) for each driver model and loft, the number of left handed and right handed versions. The nature of the Company's business makes it difficult to adjust quickly its manufacturing capacity if actual demand for its products exceeds or...

  • Page 28
    ... U.S. customers. The Company uses air carriers and ocean shipping services for most of its international shipments of products. Furthermore, many of the components the Company uses to build its golf clubs, including clubheads and shafts, are shipped to the Company via air carrier and ship services...

  • Page 29
    ... in tour, advertising and promotional support. Unless there is a change in competitive conditions, these competitive pressures and increased costs will continue to adversely affect the profitability of the Company's golf ball business. Accessories. The Company's accessories include golf bags, golf...

  • Page 30
    ... equipment standards under applicable Rules of Golf could adversely affect the Company's business. The Company seeks to have its new golf club and golf ball products satisfy the standards published by the USGA and The R&A in the Rules of Golf because these standards are generally followed by golfers...

  • Page 31
    ... order to evaluate and promote Callaway Golf and Odyssey 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 Golf Tour and the Web.com Tour...

  • Page 32
    ... 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 consumers. On the other hand, stopping...

  • Page 33
    .... 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 34
    ... and internationally, including properties in the United States, Australia, Canada, Japan, Korea, the United Kingdom, China, Thailand and India. The Company's operations at each of these properties includes to some extent activities related to both the golf club and golf ball businesses. The Company...

  • Page 35
    ... 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, 2015, the number of...

  • Page 36
    ....76 $ 200.08 $ 102.34 $ 184.64 $ 208.96 The Callaway Golf Company cumulative total shareholder return is based upon the closing prices of Callaway Golf Company common stock on December 31, 2009, 2010, 2011, 2012, 2013 and 2014 of $7.54, $8.07, $5.53, $6.50, $8.43 and $7.70, respectively. Purchases...

  • Page 37
    ... in this report. Years Ended December 31, 2014 (1) 2013 (1)(2) 2012 (1)(2)(3)(4) 2011 (4)(5)(6)(7)(8) 2010 (4)(6)(7) (In thousands, except per share data) Statement of Operations Data: Net sales ...Cost of sales ...Gross profit ...Selling, general and administrative expenses...Research and...

  • Page 38
    ... increase focus on the Company's core Callaway and Odyssey business, the Company sold its Top-Flite and Ben Hogan brands, including trademarks, service marks and certain other intellectual property for net cash proceeds of $26.9 million. The sale of these two brands resulted in a pre-tax net gain of...

  • Page 39
    ... 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 40
    ... flows directly related to the potentially 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...

  • Page 41
    ...first quarter of 2012. The impairment charge related to the amortizing intangible assets (i.e. patents) acquired during the Top-Flite and Ben Hogan acquisition. During the fourth quarter of 2012, the Company changed its intellectual property strategy as part of its 2012 restructuring initiatives. As...

  • Page 42
    ... based on the Company's best judgment at the time made based on current and projected circumstances and conditions. In 2011, as a result of this evaluation, the Company recorded a valuation allowance against its U.S. deferred tax assets. At the end of each interim and annual reporting period, as the...

  • Page 43
    ..., 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 balls that...

  • Page 44
    ... the Company conducts its business. During 2014, the Company's reported net sales in regions outside the United States were negatively affected by the translation of foreign currency sales into U.S. dollars based on 2014 exchange rates. If 2013 exchange rates were applied to 2014 reported sales in...

  • Page 45
    ... of the Big Bertha family of woods, APEX irons, and Speed Regime and Supersoft golf balls launched during 2014, which resulted in market share gains across all product categories. In addition, net sales were positively impacted by a strategic change in product launch timing. These increases...

  • Page 46
    ... share of $0.31 in 2013. The Company's net loss for the year ended December 31, 2013 includes $16.6 million related to the Cost Reduction Initiatives. There were no charges related to these initiatives recognized in 2014. Golf Clubs Segment Net sales information for the golf clubs segment by product...

  • Page 47
    ...increase in net sales of packaged sets and headwear. These increases were partially offset by a decline in apparel and footwear sales primarily due to the transition of the Company's European apparel business to a licensing model at the beginning of 2014. Golf Balls Segment Net sales information for...

  • Page 48
    ... Big Bertha family of drivers and irons in 2014 compared to the X Hot family of drivers and irons in 2013; (ii) an increase in average selling prices on the X2 Hot family of drivers, fairway woods and irons in 2014 compared to the X Hot golf club products in 2013; (iii) cost savings from improved...

  • Page 49
    ... to the recognition of a $6.6 million net gain in connection with the sale of the Company's Top-Flite and Ben Hogan brands during the first half of 2012, in addition to a $4.3 million increase in bad debt expense in 2013. These increases were partially offset by the Cost Reduction Initiatives, which...

  • Page 50
    ... charges (in millions): 2013 2012 Pre-tax charges related to the Cost Reduction Initiatives ...$ Pre-tax impairment charges...Pre-tax charges related to the reorganization and reinvestment initiatives...Pre-tax gain on the sale of Top-Flite and Ben Hogan brands...Total...$ Golf Clubs Segment (16...

  • Page 51
    ... 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 of higher priced premium golf ball models in 2012. In addition, golf ball sales...

  • Page 52
    ... 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 loss in the Company's golf balls operating segment improved to $3.4 million...

  • Page 53
    ... from operations in 2012 and 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
    ... earned in 2014, and paid in February 2015. Consists primarily of the deferred gain on the sale of certain buildings in Carlsbad in March 2011 (see Note 7 "Sale of Buildings" in the Notes to Consolidated Financial Statements in this Form 10-K). During its normal course of business, the Company has...

  • Page 55
    ... 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 in the...

  • Page 56
    ... respectively. At December 31, 2014 and 2013, 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...

  • Page 57
    ...effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set...

  • Page 58
    ... opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the Company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other...

  • Page 59
    ... in the Company's definitive Proxy Statement under the captions "Compensation of Executive Officers," "Report of the Compensation and Management Succession Committee" and "Board of Directors and Corporate Governance," to be filed with the Commission within 120 days after the end of fiscal year 2014...

  • Page 60
    ...the caption "Compensation of Executive Officers-Compensation Committee Interlocks and Insider Participation," "Transactions with Related Persons" and "Board of Directors and Corporate Governance" to be filed with the Commission within 120 days after the end of fiscal year 2014 pursuant to Regulation...

  • Page 61
    .... All such requests should be directed to the Company's Investor Relations Department at Callaway Golf Company, 2180 Rutherford Road, Carlsbad, CA 92008. 3.1 3.2 Certificate of Incorporation, incorporated herein by this reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, as filed...

  • Page 62
    ... 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Commission on February 27, 2014 (file no. 1-10962). Director's Service Agreement, effective as of December 1, 2002, as amended, by and between Callaway Golf Company and Neil Howie, incorporated...

  • Page 63
    ... 22, 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 collateral agent, UBS Securities LLC, as...

  • Page 64
    ... Golf Ball Operations, Inc., Callaway Golf Canada Ltd., Callaway Golf Europe Ltd., Callaway Golf Interactive, Inc., Callaway Golf International Sales Company, Callaway Golf European Holding Company Limited, Bank of America, N.A., as administrative agent and collateral agent, UBS Securities LLC...

  • Page 65
    ... duly authorized. CALLAWAY GOLF COMPANY By: /S/ OLIVER G. BREWER III Oliver G. Brewer III President and Chief Executive Officer Date: March 3, 2015 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant...

  • Page 66
    ... 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 statements made, in...

  • Page 67
    ... 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. (b) /S/ BRADLEY J. HOLIDAY Bradley J. Holiday Senior Executive Vice President and Chief Financial Officer Date: March 3, 2015

  • Page 68
    ... 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, 2014, as filed with the Securities and Exchange Commission (the "10-K Report"), that: (1) The 10-K Report...

  • Page 69
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm ...F-2 Consolidated Balance Sheets as of December 31, 2014 and 2013 ...F-3 Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012 ...F-4 Consolidated Statements of ...

  • Page 70
    ... with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2014, based on the...

  • Page 71
    CALLAWAY GOLF COMPANY CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2014 2013 ASSETS Current assets: Cash and cash equivalents ...$ 37,635 $ 36,793 Accounts receivable, net ...109,848 92,203 Inventories...207,229 263,492 Deferred taxes, net ...5,081 6,419 ...

  • Page 72
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2014 2013 2012 Net sales...$ 886,945 Cost of sales...529,019 Gross profit...Selling expenses...General and administrative expenses...Research and development expenses...Total ...

  • Page 73
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Year Ended December 31, 2014 2013 2012 Net income (loss) ...$ Other comprehensive (loss) income, net of tax:...Foreign currency translation adjustments ...Comprehensive income (loss) ...$ 16,008 $ (18,921...

  • Page 74
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2014 2013 2012 Cash flows from operating activities: Net income (loss) ...Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and ...

  • Page 75
    ...Balance, December 31, 2011 ...Preferred stock to convertible note exchange ...Preferred stock to common stock exchange ...Acquisition of treasury... in non-controlling interest ...Deconsolidation of subsidiaries...Net loss ...Balance, December 31, 2013 ...Equity issuance costs...Acquisition of treasury...

  • Page 76
    ... its subsidiaries, designs, manufactures and sells high quality golf clubs (drivers, fairway woods, hybrids, irons, wedges and putters), golf balls, golf bags and other golf-related accessories. The Company generally sells its products to golf retailers (including pro shops at golf courses and off...

  • Page 77
    ... of the sales program, management's forecast of future product demand, and historical customer participation in similar programs. The following table provides a reconciliation of the activity related to the Company's allowance for sales returns: Years Ended December 31, 2014 2013 (In thousands) 2012...

  • Page 78
    ...130,000 and $7,073,000 during 2014, 2013 and 2012, 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 79
    ... occur. The Company recorded a net loss in foreign currency transactions of $6,198,000, $821,000 and $3,343,000 in 2014, 2013 and 2012, respectively. Derivatives and Hedging The Company uses derivative financial instruments to manage its exposure to foreign exchange rates. The derivative instruments...

  • Page 80
    ... net income/(loss). Construction in-process consists primarily of costs associated with building improvements, machinery and equipment that have not yet been placed into service, unfinished molds as well as in-process internally developed software. In accordance with ASC Topic 350-40, "Internal-Use...

  • Page 81
    ... uses its internal discounted cash flow estimates, quoted market prices, royalty rates when available and independent appraisals when appropriate. The Company completed its annual impairment test and fair value analysis of goodwill and other indefinite-lived intangible assets as of December 31, 2014...

  • Page 82
    ... based on the Company's best judgment at the time made based on current and projected circumstances and conditions. In 2011, as a result of this evaluation, the Company recorded a valuation allowance against its U.S. deferred tax assets. At the end of each interim and annual reporting period, as the...

  • Page 83
    ...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 84
    ... 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 (see Note 7). As of December 31, 2013, the Company completed the Cost...

  • Page 85
    ... 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 charges for the year ended December 31, 2013 included the following: • $2,977,000 in continued costs associated...

  • Page 86
    ... Facility imposes restrictions on the amount the Company could pay in annual cash dividends, including meeting certain requirements on the amount of additional indebtedness and the fixed charge coverage ratio. At December 31, 2014, the Company could have distributed an additional $21,100,000 in cash...

  • Page 87
    ... notes into shares of the Company's common stock if the closing price of the Company's common stock is greater than or equal to 130% of the conversion price for at least 20 of 30 consecutive trading days. If the Company exercises such termination right prior to August 15, 2015, each note holder who...

  • Page 88
    ...into 2,602,770 shares of the Company's common stock at the stated conversion rate of 14.1844. The Company redeemed the remaining 300 shares for $30,000. As of December 31, 2014 and 2013, there were no outstanding shares of the Company's Series B Cumulative Perpetual Convertible Preferred Stock. Note...

  • Page 89
    ... $785,000 accrued in accounts payable and accrued expenses as of December 31, 2014 and 2013, respectively, for certain environmental remediation costs related to the sale of this facility. In March 2011, the Company sold three of its buildings located in Carlsbad, California, and entered into lease...

  • Page 90
    ... to the Ben Hogan brand including trademarks, service marks and certain other intellectual property for net cash proceeds of $6,961,000. The net book value of the Top-Flite and Ben Hogan assets totaled $20,244,000, which resulted in the recognition of a pre-tax net gain of $6,602,000 in general and...

  • Page 91
    ... 31, 2012, non-controlling interest related to Suntech in the consolidated statements of shareholders' equity included net profits of $259,000. The Company deconsolidated the financial results of Suntech in 2013 as a result of its termination of the Golf Ball Manufacturing Supply Agreement. Suntech...

  • Page 92
    ... 31, 2014 2013 (In thousands) Accounts receivable, net: Trade accounts receivable ...$ Allowance for sales returns ...Allowance for doubtful accounts...$ Inventories: Raw materials ...$ Work-in-process...Finished goods...$ Property, plant and equipment, net: Land...$ Buildings and improvements...

  • Page 93
    Note 12. Income Taxes The Company's income (loss) before income tax provision was subject to taxes in the following jurisdictions for the following periods (in thousands): Years Ended December 31, 2014 2013 2012 United States ...$ 6,981 Foreign ...14,658 $ 21,639 The expense (benefit) for income ...

  • Page 94
    ... related to foreign currency translation adjustments. Deferred tax assets and liabilities result from temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are anticipated to be in effect at the time...

  • Page 95
    In 2011, the Company established 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, 2014 and 2013, the valuation allowance against the Company's U.S. deferred tax assets was $165,427,...

  • Page 96
    ... on income or loss and the statutory tax rate is as follows: Years Ended December 31, 2014 2013 2012 Statutory U.S. tax rate...State income taxes, net of U.S. tax benefit ...Federal and State tax credits, net of U.S. tax benefit...Expenses with no tax benefit ...Foreign income taxed at other than...

  • Page 97
    ... business activities, including claims, proceedings, and investigations relating to commercial disputes and employment matters. The Company also receives from time to time information claiming that products sold by the Company infringe or may infringe patent, trademark or other intellectual property...

  • Page 98
    ... of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include (i) intellectual property indemnities to the Company's customers and licensees in connection with the use, sale and...

  • Page 99
    ... 2014, the Company's Board of Directors authorized a $50,000,000 share repurchase program under which the Company is authorized to repurchase shares of its common stock in the open market or in private transactions, subject to the Company's assessment of market conditions and buying opportunities...

  • Page 100
    ... 31, 2014, 2013 and 2012, 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-free interest rate, the...

  • Page 101
    ... the 2004 Incentive 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, 2014, 2013 and 2012, the weighted average grant-date fair value of restricted stock...

  • Page 102
    ... the years ended December 31, 2013 or 2012. During the year ended December 31, 2014, the Company recognized total compensation expense, net of estimated forfeitures, of $1,303,000 for performance share units. At December 31, 2014, unamortized compensation expense related to these awards was $3,840...

  • Page 103
    ...estimated 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, 2014, the Company reversed...

  • Page 104
    ... of two years of service. In accordance with the provisions of the 401(k) Plan, the Company matched employee contributions in the amount of $1,687,000, $1,589,000 and $2,156,000 during 2014, 2013 and 2012, respectively. Additionally, the Company can make discretionary contributions based on...

  • Page 105
    ... the Cost Reduction Initiatives (see Note 3), the Company reached an agreement to sell its golf ball manufacturing facility in Chicopee, Massachusetts and, in connection with this agreement, during the year ended December 31, 2012, the Company designated this building as assets available for sale...

  • Page 106
    .... The increase in foreign currency exchange contracts reflects the general timing of when the Company enters into these contracts. The Company estimates the fair values of foreign currency exchange contracts based on pricing models using current market rates, and records all derivatives on...

  • Page 107
    ...golf club sales, respectively, and the top five golf ball customers accounted for approximately 30% of total consolidated golf ball sales in 2014 and 27% in 2013 and 2012. During the first quarter of 2012, the Company completed the sale of certain assets related to the Top-Flite and Ben Hogan brands...

  • Page 108
    ...'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, 2014 2013(1) (In thousands) 2012(1) Net sales: Woods ...$ 269,468 Irons ...200,174 Putters ...81,161 Golf Balls ...136,989 Accessories...

  • Page 109
    ... five customers accounted for no more than 25% of the Company's consolidated revenues in 2014, 23% in 2013, and 25% in 2012. Note 20. Transactions with Related Parties The Callaway Golf Company Foundation (the "Foundation") oversees and administers charitable giving for the Company and makes grants...

  • Page 110
    ...may not necessarily equal the total for the year. (2) During the first, second, third and fourth quarters of 2013, the Company recognized charges of $2,282,000, $4,087,000, $1,005,000 and $3,775,000, respectively, in cost of goods sold in connection with the Company's Cost Reduction Initiatives (see...

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    ... and astonishing performance difference that immediately separates itself from everything else in its category. Case in point: Chrome Soft, a game-changing golf ball that combines Tour-caliber distance and spin control with spectacularly soft feel. The key is our new SoftFast core that combines low...

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