Callaway 2015 Annual Report Download

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2015 ANNUAL REPORT

Table of contents

  • Page 1
    2015 ANNUAL REPORT

  • Page 2
    ... a variety of technologies into the Great Big Bertha to promote faster ball speed, distance-enhancing launch conditions and straighter ï¬,ight to help golfers realize every possible yard that they had been leaving behind. THE BALL THAT CHANGED THE BALL Chrome Soft elevated golf ball performance to...

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

  • Page 4
    ... and a significantly strengthened balance sheet. Standout products launched in 2015 include the Great Big Bertha driver, the XR line of woods and irons, the Chrome Soft golf ball and new Apex 16 irons and hybrids. Our Mack Daddy 3 wedges and the Odyssey Works line of putters were also significant...

  • Page 5
    ...metal wood, iron, putter and ball technology. Our innovation pipeline remains strong; we will continue developing superior golf equipment that helps golfers of all levels play better and enjoy the game more. It's what the people at Callaway Golf Company do best and it's what drives shareholder value...

  • Page 6
    ... of the head and re-engineered the face. The new XR 16 Driver is an extraordinarily forgiving and fast distance machine. With White Hot RX, we've reached the next evolution in White Hot feel and combined it with better roll to help control your speed. We are taking our SoftFast Core technology to...

  • Page 7
    ...cer, QUALCOMM Incorporated 695 Town Center Drive, Suite 1200 Costa Mesa, CA 92626 Transfer Agent and Registrar MEETINGS AND INFORMATION The 2016 Annual Meeting of Shareholders Wednesday, May 11, 2016 Callaway Golf Company Headquarters 2180 Rutherford Road Carlsbad, CA 92008 760.931.1771 For more...

  • Page 8
    ... 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" contained in the following Annual Report...

  • Page 9
    2015 FINANCIAL RESULTS

  • Page 10

  • 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

  • Page 13
    ... by unfavorable economic or market conditions; the ability of the Company to manage international business risks; future changes in foreign currency exchange rates and the degree of effectiveness of the Company's hedging programs; adverse changes in the credit markets or continued compliance with...

  • Page 14
    ...Gravity Core-Great Big Bertha-Heavenwood-Hex Aerodynamics-Hex Chrome-Hex Solaire-HX-Hyper Lite-Hyper Speed Face-IMIX-Innovate or Die design-Ion X-Jailbird-Kings of Distance-Legacy-Longer From Everywhere-Mack Daddy-MarXman-MD3 Milled-MetalX-Number One Putter in Golf-Odyssey-Odyssey Works-OptiFit-Opti...

  • 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
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  • Page 17
    ... and the ruling authority known as The R&A. The Company has two reportable operating segments that are organized on the basis of products, namely the golf clubs segment and golf balls segment. The golf clubs segment consists of Callaway Golf woods, hybrids, irons and wedges and Odyssey putters. This...

  • Page 18
    ...'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. Irons. This product category includes sales of the Company's irons and wedges, which are sold under the Callaway Golf...

  • Page 19
    ...wholly-owned subsidiaries located in Japan, Europe, Korea, Canada, Australia, China and India. In addition to sales through its subsidiaries, the Company also sells through its network of distributors in over 70 foreign countries, including Singapore, Indonesia, the Philippines, South Africa, and in...

  • Page 20
    ... 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 certain competitor golf clubs at authorized Callaway Golf retailers or through the Callaway Golf Pre-Owned website...

  • Page 21
    ... the Company does business, the game of golf is played primarily on a seasonal basis. Weather conditions in most parts of the world generally restrict golf from being played year-round, with many of the Company's on-course customers closing during the cold weather months. The Company's business is...

  • Page 22
    ... improvements and packaging minimization; and Supply chain management through Social, Safety and Environmental Responsibility audits of suppliers. The Company also has two existing programs focusing on the community: the Callaway Golf Company Foundation and the Callaway Golf Company Employee...

  • Page 23
    ...Research and Development Senior Vice President, General Counsel & Corporate Secretary Senior Vice President, Global Operations President, 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 has served...

  • Page 24
    ... Affecting Callaway Golf Company The Company's business, operations and financial condition are subject to various risks and uncertainties. The Company urges you to carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on...

  • Page 25
    ... 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 subsidiaries, and to foreign distributors. The Company...

  • Page 26
    ...the latest technology. In this marketplace, a substantial portion of the Company's annual revenues is generated each year by products that are in their first year of their product life cycle. These marketplace conditions raise a number of issues that the Company must successfully manage. For example...

  • Page 27
    ... industry. Despite the decline in the worldwide golf market in recent years, the Company believes that the industry is improving and interest in the game is growing. However, in the future, the overall dollar volume of worldwide sales of golf clubs or golf balls may not grow or may decline. If the...

  • 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
    ... of 2015 and 2014, and 27% in 2013. A loss of one or more of these customers would have a significant adverse effect on the Company's golf club and golf ball sales. International political instability and terrorist activities may decrease demand for the Company's products and disrupt its business...

  • Page 30
    ... in fluctuations in its operating results and stock price. The Company's business is subject to seasonal fluctuations. The Company's first quarter-sales generally represent the Company's sell-in to the golf retail channel of its golf club products for the new golf season. The Company's second and...

  • Page 31
    ...golfers in 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...

  • Page 32
    ... 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 infrastructure and facilities. In addition, there are a limited number of suppliers of golf club...

  • Page 33
    ... and condition. Item 1B. Unresolved Staff Comments None. Item 2. Properties The Company and its subsidiaries conduct operations in both owned and leased properties. The Company's principal executive offices and domestic operations are located in Carlsbad, California. The Company owns two buildings...

  • Page 34
    ... and internationally, including properties in the United States, Australia, Canada, Japan, Korea, the United Kingdom, China, 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 believes...

  • Page 35
    ... 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 29, 2016, the number...

  • Page 36
    ... closing prices of Callaway Golf Company common stock on December 31, 2010, 2011, 2012, 2013, 2014 and 2015 of $8.07, $5.53, $6.50, $8.43, $7.70 and $9.42, respectively. Purchases of Equity Securities by the Issuer and Affiliated Purchasers In August 2014, the Company's Board of Directors authorized...

  • Page 37
    ... statements, related notes and other financial information. Years Ended December 31, 2015 (1) 2014 (1) 2013 (1)(2) 2012 (1)(2)(3)(4) 2011 (4)(5)(6)(7)(8) (In thousands, except per share data) Statement of Operations Data: Net sales...Cost of sales...Gross profit...Selling, general and...

  • Page 38
    ...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 $6.6 million. The Company's operating...

  • Page 39
    ... to customers shortly after year-end. In addition to the Preferred Retailer Program, the Company from 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...

  • Page 40
    ... 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 market prices...

  • Page 41
    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 warranty obligations, the Company considers various relevant ...

  • Page 42
    ... are not achieved as of the end of the performance period. The performance units vest in full at the end of a three year period. The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options and stock appreciation rights ("SARs") at the date of grant. The...

  • Page 43
    .... The Company has two reportable operating segments that are organized on the basis of products, namely the golf clubs segment and golf balls segment. The golf clubs segment consists of Callaway Golf woods, hybrids, irons and wedges and Odyssey putters. This segment also includes other golf-related...

  • Page 44
    ... number one dollar market share position in the United States in total golf clubs (per Golf Datatech). In addition to improved operational performance, the Company also strengthened its balance sheet through the retirement of its outstanding convertible debt in 2015. The Company's net sales in 2015...

  • Page 45
    ... in the prior year. The Company's net sales by operating segment are presented below (dollars in millions): Years Ended December 31, 2015 2014 Constant Currency Growth/(Decline) vs. 2014 Percent Growth/(Decline) Dollars Percent Net sales: Golf clubs ...$ 700.7 Golf balls ...143.1 $ 843.8 $ 749...

  • Page 46
    ... the irons, putters and golf ball categories; (ii) an increase in average selling prices, primarily within the woods category; (iii) a decrease in closeouts and promotional activity; and (iv) improved operational efficiencies. These increases were partially offset by the decrease in net sales as...

  • Page 47
    ... the success of the Company's new Mac Daddy 3 wedges and XR irons launched in 2015 combined with an increase in average selling prices. The increase in average selling prices is due to less closeout and promotional activity in the current year. Net sales of putters increased $5.2 million (6%) to $86...

  • Page 48
    ... to the XR line of hybrids, which were launched at a higher average selling price compared to the X2 Hot line of hybrids launched in 2014; (iv) a decrease in closeouts and promotional activity primarily within the woods, irons and putters categories; and (v) improved operational efficiencies. These...

  • Page 49
    ... 31, 2013. This increase was due to increased sales in both the golf club and golf ball operating segments resulting primarily from continued brand momentum and the strong performance of the Big Bertha family of woods, APEX irons, and Speed Regime and Supersoft golf balls launched during 2014, which...

  • Page 50
    ... success of the more premium APEX and Big Bertha irons during 2014. The $6.7 million (8%) decrease in net sales of putters to $81.1 million for the year December 31, 2014 was primarily attributable to a decline in sales volume partially offset by an increase in average selling prices. The decline in...

  • Page 51
    ... shift in sales mix to the higher margin 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...

  • Page 52
    ... in operating expenses. The increase in gross margin was primarily driven by (i) the launch of the premium Speed Regime golf balls in 2014 with no comparable premium launch in 2013, combined with an increase in average selling prices on value-priced golf balls; and (ii) cost savings from improved...

  • Page 53
    ..., dealers or agents at amounts, prices, interest rates and other terms to be determined at the time of the offering. In connection with the Company's investment in Topgolf International, Inc., doing business as the Topgolf Entertainment Group ("Topgolf"), on February 22, 2016, Topgolf announced that...

  • Page 54
    ... 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 55
    ... condition. The fair value of indemnities, commitments and guarantees that the Company issued during the fiscal year ended December 31, 2015 was not material to the Company's financial position, results of operations or cash flows. In addition to the contractual obligations listed above, the Company...

  • Page 56
    ... contracts based on pricing models using current market rates, and records these contracts on the balance sheet at fair value with changes in fair value recorded in earnings in other income (expense). As part of the Company's risk management procedure, a sensitivity analysis model is used to measure...

  • Page 57
    ..., management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in its report entitled Internal Control-Integrated Framework (2013). Based on that assessment, management concluded that as of December 31, 2015, the Company's internal control...

  • Page 58
    ... 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, 2015, based on criteria established in...

  • Page 59
    ...) Plan Category Equity Compensation Plans Approved by Shareholders(1) 4,881(2) $ 8.55 7,767 (1) Consists of the following plans: Callaway Golf Company Amended and Restated 2004 Incentive Plan ("2004 Incentive Plan") and 2013 Non-Employee Directors Stock Incentive Plan ("2013 Directors Plan...

  • Page 60
    ... and Director Independence The information required by Item 13 will be included in the Company's definitive Proxy Statement under the captions "Transactions with Related Persons" and "Board of Directors and Corporate Governance," to be filed with the Commission within 120 days after the end of...

  • Page 61
    ... 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 with the...

  • 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 Sales Company, Callaway Golf Ball Operations, Inc., Callaway Golf Canada Ltd., Callaway Golf Europe Ltd., Callaway Golf Interactive, Inc. and Callaway Golf International Sales Company and Callaway Golf European Holding Company Limited, Bank of America, N.A., as administrative agent and security...

  • Page 65
    ....2 101.3 101.4 101.5 101.6 Certification of Robert K. Julian pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the...Taxonomy Extension Calculation Linkbase Document †XBRL Taxonomy Extension Definition Linkbase Document †XBRL Taxonomy Extension Label Linkbase ...

  • Page 66
    ... duly authorized. CALLAWAY GOLF COMPANY By: /S/ OLIVER G. BREWER III Oliver G. Brewer III President and Chief Executive Officer Date: March 3, 2016 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 67
    ...information; and 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. (b) /S/ OLIVER G. BREWER III Oliver G. Brewer III President and Chief Executive Officer Date: March 3, 2016

  • Page 68
    ...; and 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. (b) /S/ ROBERT K. JULIAN Robert K. Julian Senior Vice President and Chief Financial Officer Date: March 3, 2016

  • Page 69
    ...-Oxley Act of 2002, each of the undersigned 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, 2015, as filed with the Securities and Exchange Commission (the "10...

  • Page 70
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  • Page 71
    ... Balance Sheets as of December 31, 2015 and 2014 Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 2013 Consolidated Statements of Cash Flows for the years...

  • Page 72
    ...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, 2015 and 2014, and the related consolidated statements of operations...

  • Page 73
    ..., at cost, 2,075 shares and 779,681 shares at (20) (8,443) December 31, 2015 and 2014, respectively ...Total Callaway Golf Company shareholders' equity...412,945 291,534 $ 624,811 Total liabilities and shareholders' equity...$ 631,224 The accompanying notes are an integral part of these consolidated...

  • Page 74
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2015 2014 2013 Net sales ...$ 843,794 Cost of sales ...486,161 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, 2015 2014 2013 Net income (loss) ...$ 14,568 $ 16,008 $ (18,921) Other comprehensive income (loss):...Change in fair value of derivative instruments ...525 - - (11,542) (12,973) (2,...

  • Page 76
    CALLAWAY GOLF COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2015 2014 2013 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 77
    $"--"8":(0-'$0.1"/: $0/40-*%"5&%45"5&.&/540'4)"3&)0-%&34`&26*5: *OUIPVTBOET $BMMBXBZ(PMG4IBSFIPMEFST 1SFGFSSFE4UPDL 4IBSFT "NPVOU $PNNPO4UPDL 4IBSFT "NPVOU "EEJUJPOBM 1BJEJO $BQJUBM 3FUBJOFE &BSOJOHT "DDVNVMBUFE 0UIFS $PNQSFIFOTJWF 5SFBTVSZ4UPDL 4IBSFT "NPVOU /PO DPOUSPMMJOH *...

  • Page 78
    ...The Company Callaway Golf Company ("Callaway Golf" or the "Company"), a Delaware corporation, together with 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...

  • Page 79
    ... interim or annual reporting period. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements. In April 2015, the FASB has issued ASU No. 2015-05, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for...

  • Page 80
    ... Recognition Sales are recognized, in general, as products are shipped to customers, net of an allowance for sales returns and sales programs in accordance with Accounting Standards Codification ("ASC") Topic 605, "Revenue Recognition." In certain cases, the Company recognizes sales when products...

  • Page 81
    ...881,000 and $9,130,000 during 2015, 2014 and 2013, 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 82
    .... The Company utilizes a discounted cash flow valuation model whenever applicable to derive a fair value measurement on long-lived assets and goodwill and intangible assets. The Company uses its internal cash flow estimates discounted at an appropriate rate, quoted market prices, royalty rates when...

  • Page 83
    ... 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 Software," the Company capitalizes certain costs incurred in connection with...

  • Page 84
    ... 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, 2015...

  • Page 85
    ... (collectively "restricted stock") 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...

  • Page 86
    ... of golf clubs and golf balls. The golf clubs segment consists primarily 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...

  • Page 87
    ...depends on a single or a limited number of suppliers for the materials it uses to make its golf balls. Many of these materials are customized for the Company. Any delay or interruption in such supplies could have a material adverse impact upon the Company's golf ball business. If the Company were to...

  • Page 88
    ... of Tokyo-Mitsubishi UFG, Ltd and The Development Bank of Japan. The Company can borrow up to 2 billion Yen (or $16,632,000, using the exchange rate in effect as of December 31, 2015) over a one-year term, and the amounts outstanding are secured by certain assets, including eligible inventory. The...

  • Page 89
    ... was $108,574,000, and the unamortized discount was $3,926,000. Total interest and amortization expense recognized during the years ended December 31, 2015 and 2014 was $3,158,000 and $4,957,000, respectively. Note 4. Preferred Stock In August 2013, the Company exchanged 233,843 shares of its then...

  • Page 90
    ...reflects the potential dilution that could occur if convertible securities, or other contracts to issue common stock, were exercised or converted into common stock. Options with an exercise price in excess of the average market value of the Company's common stock during the period have been excluded...

  • Page 91
    ... partner agreement with Topgolf in which the Company has 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...

  • Page 92
    ... of the Topgolf business, Topgolf's future capital structure, potential future dilution, and private and public equity market valuations and market conditions. In the absence of the Providence Equity Investment, it would not have been practicable for the Company to estimate the fair value of its...

  • Page 93
    ... 31, 2015 2014 (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 94
    ... No 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" which requires all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The new accounting guidance is effective for annual reporting periods beginning after December 31, 2016...

  • Page 95
    ... at the time made based on current and projected circumstances and conditions. 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, 2015 and 2014, the...

  • Page 96
    ...significant one-time non-cash tax benefit in the period that such conclusion is reached. Prospectively, the Company would then report an effective U.S. income tax rate that is closer to its statutory rates. The Company's valuation allowance does not preclude the Company from using net operating loss...

  • Page 97
    ... tax benefits is as follows (in thousands): 2015 2014 2013 Balance at January 1 ...$ Additions based on tax positions related to the current year...Additions for tax positions of prior years...Reductions for tax positions of prior years...Settlement of tax audits ...Reductions due to lapsed...

  • Page 98
    .... The Company is generally no longer subject to income tax examinations by tax authorities in its major jurisdictions as follows: Major Tax Jurisdiction Years No Longer Subject to Audit U.S. federal...California (U.S.) ...Canada ...Japan ...South Korea ...United Kingdom ... 2010 and prior...

  • Page 99
    ... 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 100
    ... 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 101
    ... a one-time grant upon their initial appointment to the Board and thereafter an annual grant upon being re-elected at each annual meeting of shareholders, not to exceed 50,000 shares within any calendar year. The maximum number of shares issuable over the term of the 2013 Directors Plan is 1,000...

  • Page 102
    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 expected term of the options, the ...

  • Page 103
    ... under 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 over a three-year period. At December 31, 2015, 2014 and 2013, the weighted average grant-date fair value of restricted stock units...

  • Page 104
    ...granted under the 2004 Incentive Plan are valued using the Black-Scholes option-pricing model on the date of grant. 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...

  • Page 105
    ... be received to sell an asset or the price paid to transfer a liability (the exit price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified using the three-tier...

  • Page 106
    ... receivable, trade payables and accrued expenses at December 31, 2015 and 2014 are reasonable estimates of fair value due to the short-term nature of these balances and are therefore classified as Level 1. The table below illustrates information about fair value relating to the Company's financial...

  • Page 107
    ... closely monitors the credit ratings of these counterparties. The following table summarizes the fair value of the Company's foreign currency forward contracts as well as the location of the asset and/or liability on the consolidated balance sheets at December 31, 2015 and 2014 (in thousands): Asset...

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    ... forward contracts based on pricing models using current market rates. These contracts are classified under Level 2 of the fair value hierarchy (see Note 15). As of December 31, 2015, the Company recorded a net gain of $2,316,000 in other comprehensive income (loss) related to its hedging activities...

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    ... the general timing of when the Company enters into these contracts. The Company estimates the fair values of foreign currency forward contracts based on pricing models using current market rates, and records all derivatives on the balance sheet at fair value with changes in fair value recorded...

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    ... and exit costs associated with the reorganization of golf ball manufacturing (see Note 11); and • $3,541,000 associated with the transition of the Company's golf apparel, golf footwear and integrated device businesses in the United States and Europe to a third-party licensing arrangement. F-40

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    ... Callaway Golf woods, hybrids, irons and wedges and Odyssey putters. This segment also includes golf apparel and footwear, golf bags, golf gloves, travel gear, headwear and other golfrelated accessories, in addition to royalties from licensing of the Company's trademarks and service marks and sales...

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    ...items represent unallocated corporate assets not segregated between the two segments. The Company's net sales by product category are as follows: Years Ended December 31, 2015 2014 (In thousands) 2013 Net sales: Woods ...$ 222,193 Irons ...205,522 Putters ...86,293 Golf Balls ...143,145 Accessories...

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    ... Related Parties The Callaway Golf Company Foundation (the "Foundation") oversees and administers charitable giving and makes grants to selected organizations. Officers of the Company also serve as directors of the Foundation and the Company's employees provide accounting and administrative services...

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    ...AND DOWN FROM ANYWHERE. Legendary wedge designer Roger Cleveland used extensive input from Tour pros to craft our MD3 Milled wedges, a remarkably versatile lineup of pitching, gap, sand and lob wedges that employ three unique sole grinds and groove designs to help golfers of every skill level handle...

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