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Form 10-Q
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ý
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Callaway Golf Company
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(Exact name of registrant as specified in its charter)
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Delaware
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95-3797580
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Large accelerated filer
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o
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Accelerated filer
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ý
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Non-accelerated filer
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o
(Do not check if a smaller reporting company)
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Smaller reporting company
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o
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•
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certain risks and uncertainties, including changes in capital market or economic conditions;
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•
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delays, difficulties, changed strategies, or increased costs in implementing the Company’s turnaround plans;
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•
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consumer acceptance of and demand for the Company’s products;
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•
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future retailer purchasing activity, which can be significantly affected by adverse industry conditions and overall retail inventory levels;
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•
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the level of promotional activity in the marketplace;
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•
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future consumer discretionary purchasing activity, which can be significantly adversely affected by unfavorable economic or market conditions;
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•
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the ability of the Company to manage international business risks;
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•
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future changes in foreign currency exchange rates and the degree of effectiveness of the Company’s hedging programs;
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•
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adverse changes in the credit markets or continued compliance with the terms of the Company’s credit facilities;
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•
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delays, difficulties 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;
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•
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adverse weather conditions and seasonality;
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•
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any rule changes or other actions taken by the USGA or other golf association that could have an adverse impact upon demand or supply of the Company’s products;
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•
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the ability of the Company to protect its intellectual property rights;
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•
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a decrease in participation levels in golf;
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•
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the effect of terrorist activity, armed conflict, natural disasters or pandemic diseases on the economy generally, on the level of demand for the Company’s products or on the Company’s ability to manage its supply and delivery logistics in such an environment; and
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•
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the general risks and uncertainties applicable to the Company and its business.
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Item 1.
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||
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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March 31,
2015 |
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December 31,
2014 |
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
23,236
|
|
|
$
|
37,635
|
|
Accounts receivable, net
|
261,888
|
|
|
109,848
|
|
||
Inventories
|
181,488
|
|
|
207,229
|
|
||
Deferred taxes, net
|
5,486
|
|
|
5,081
|
|
||
Income taxes receivable
|
491
|
|
|
928
|
|
||
Other current assets
|
23,955
|
|
|
23,312
|
|
||
Total current assets
|
496,544
|
|
|
384,033
|
|
||
Property, plant and equipment, net
|
55,588
|
|
|
58,093
|
|
||
Intangible assets, net
|
88,820
|
|
|
88,833
|
|
||
Goodwill
|
26,675
|
|
|
27,821
|
|
||
Deferred taxes, net
|
2,223
|
|
|
2,346
|
|
||
Investment in golf-related ventures (Note 6)
|
52,376
|
|
|
50,677
|
|
||
Other assets
|
10,918
|
|
|
13,008
|
|
||
Total assets
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$
|
733,144
|
|
|
$
|
624,811
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable and accrued expenses
|
$
|
131,586
|
|
|
$
|
123,251
|
|
Accrued employee compensation and benefits
|
26,019
|
|
|
37,386
|
|
||
Asset-based credit facility
|
94,318
|
|
|
15,235
|
|
||
Accrued warranty expense
|
6,408
|
|
|
5,607
|
|
||
Income tax liability
|
1,984
|
|
|
2,623
|
|
||
Deferred taxes, net
|
26
|
|
|
26
|
|
||
Total current liabilities
|
260,341
|
|
|
184,128
|
|
||
Long-term liabilities:
|
|
|
|
||||
Income tax payable
|
3,586
|
|
|
3,867
|
|
||
Deferred taxes, net
|
35,322
|
|
|
35,043
|
|
||
Convertible notes, net (Note 2)
|
108,776
|
|
|
108,574
|
|
||
Long-term incentive compensation and other
|
1,005
|
|
|
1,665
|
|
||
Commitments and contingencies (Note 9)
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Preferred stock, $0.01 par value, 3,000,000 shares authorized, none issued and outstanding at March 31, 2015 and December 31, 2014
|
—
|
|
|
—
|
|
||
Common stock, $0.01 par value, 240,000,000 shares authorized, 78,373,598 shares issued at both March 31, 2015 and December 31, 2014
|
784
|
|
|
784
|
|
||
Additional paid-in capital
|
207,466
|
|
|
210,057
|
|
||
Retained earnings
|
124,929
|
|
|
89,932
|
|
||
Accumulated other comprehensive loss
|
(5,918
|
)
|
|
(796
|
)
|
||
Less: Common stock held in treasury, at cost, 313,277 and 779,681 shares at March 31, 2015 and December 31, 2014, respectively
|
(3,147
|
)
|
|
(8,443
|
)
|
||
Total shareholders’ equity
|
324,114
|
|
|
291,534
|
|
||
Total liabilities and shareholders’ equity
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$
|
733,144
|
|
|
$
|
624,811
|
|
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Three Months Ended
March 31, |
||||||
|
2015
|
|
2014
|
||||
Net sales
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$
|
284,179
|
|
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$
|
351,874
|
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Cost of sales
|
156,913
|
|
|
186,977
|
|
||
Gross profit
|
127,266
|
|
|
164,897
|
|
||
Operating expenses:
|
|
|
|
||||
Selling expense
|
66,319
|
|
|
77,311
|
|
||
General and administrative expense
|
16,099
|
|
|
17,996
|
|
||
Research and development expense
|
7,916
|
|
|
7,913
|
|
||
Total operating expenses
|
90,334
|
|
|
103,220
|
|
||
Income from operations
|
36,932
|
|
|
61,677
|
|
||
Interest income
|
71
|
|
|
43
|
|
||
Interest expense
|
(2,092
|
)
|
|
(2,691
|
)
|
||
Other income (expense), net
|
2,546
|
|
|
(2,243
|
)
|
||
Income before income taxes
|
37,457
|
|
|
56,786
|
|
||
Income tax provision
|
1,638
|
|
|
1,474
|
|
||
Net income
|
$
|
35,819
|
|
|
$
|
55,312
|
|
|
|
|
|
||||
Earnings per common share:
|
|
|
|
||||
Basic
|
$
|
0.46
|
|
|
$
|
0.71
|
|
Diluted
|
$
|
0.39
|
|
|
$
|
0.61
|
|
Weighted-average common shares outstanding:
|
|
|
|
||||
Basic
|
77,753
|
|
|
77,370
|
|
||
Diluted
|
93,896
|
|
|
93,172
|
|
||
|
|
|
|
||||
Dividends paid per common share
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
Three Months Ended
March 31, |
||||||
|
2015
|
|
2014
|
||||
Net income
|
$
|
35,819
|
|
|
$
|
55,312
|
|
Other comprehensive income (loss):
|
|
|
|
||||
Change in fair value of derivative instruments
|
1,856
|
|
|
—
|
|
||
Foreign currency translation adjustments
|
(6,978
|
)
|
|
173
|
|
||
Comprehensive income
|
$
|
30,697
|
|
|
$
|
55,485
|
|
|
Three Months Ended
March 31, |
||||||
|
2015
|
|
2014
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
35,819
|
|
|
$
|
55,312
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
||||
Depreciation and amortization
|
4,703
|
|
|
5,697
|
|
||
Deferred taxes
|
(15
|
)
|
|
14
|
|
||
Share-based compensation
|
1,826
|
|
|
1,163
|
|
||
Gain on disposal of long-lived assets
|
(257
|
)
|
|
(282
|
)
|
||
Discount amortization on convertible notes
|
202
|
|
|
182
|
|
||
Change in assets and liabilities:
|
|
|
|
||||
Accounts receivable, net
|
(155,309
|
)
|
|
(196,563
|
)
|
||
Inventories
|
23,357
|
|
|
18,518
|
|
||
Other assets
|
1,129
|
|
|
53
|
|
||
Accounts payable and accrued expenses
|
9,274
|
|
|
(3,328
|
)
|
||
Accrued employee compensation and benefits
|
(11,111
|
)
|
|
(1,977
|
)
|
||
Accrued warranty expense
|
801
|
|
|
1,539
|
|
||
Income taxes receivable/payable
|
(295
|
)
|
|
(2,348
|
)
|
||
Other liabilities
|
(472
|
)
|
|
(2,778
|
)
|
||
Net cash used in operating activities
|
(90,348
|
)
|
|
(124,798
|
)
|
||
Cash flows from investing activities:
|
|
|
|
||||
Capital expenditures
|
(2,393
|
)
|
|
(4,048
|
)
|
||
Proceeds from sales of property and equipment
|
1
|
|
|
44
|
|
||
Net cash used in investing activities
|
(2,392
|
)
|
|
(4,004
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from asset-based credit facilities, net
|
79,083
|
|
|
114,927
|
|
||
Exercise of stock options
|
2,239
|
|
|
1,591
|
|
||
Dividends paid
|
(780
|
)
|
|
(774
|
)
|
||
Acquisition of treasury stock
|
(1,402
|
)
|
|
—
|
|
||
Equity issuance costs
|
—
|
|
|
5
|
|
||
Net cash provided by financing activities
|
79,140
|
|
|
115,749
|
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(799
|
)
|
|
(183
|
)
|
||
Net decrease in cash and cash equivalents
|
(14,399
|
)
|
|
(13,236
|
)
|
||
Cash and cash equivalents at beginning of period
|
37,635
|
|
|
36,793
|
|
||
Cash and cash equivalents at end of period
|
$
|
23,236
|
|
|
$
|
23,557
|
|
Supplemental disclosures:
|
|
|
|
||||
Cash paid for income taxes, net
|
$
|
(1,929
|
)
|
|
$
|
(3,817
|
)
|
Cash paid for interest and fees
|
$
|
(2,812
|
)
|
|
$
|
(2,944
|
)
|
Noncash investing and financing activities:
|
|
|
|
||||
Issuance of treasury stock for compensatory stock awards released from restriction
|
$
|
3,300
|
|
|
$
|
—
|
|
Accrued capital expenditures at period-end
|
$
|
656
|
|
|
$
|
435
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Treasury Stock
|
|
|
|
|||||||||||||||||||
|
Shares
|
|
Amount
|
|
|
|
|
Shares
|
|
Amount
|
|
Total
|
|||||||||||||||||||
Balance at December 31, 2014
|
78,374
|
|
|
$
|
784
|
|
|
$
|
210,057
|
|
|
$
|
89,932
|
|
|
|
$
|
(796
|
)
|
|
|
(780
|
)
|
|
$
|
(8,443
|
)
|
|
$
|
291,534
|
|
Acquisition of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
(159
|
)
|
|
(1,402
|
)
|
|
(1,402
|
)
|
||||||
Exercise of stock options
|
—
|
|
|
—
|
|
|
(1,159
|
)
|
|
—
|
|
|
|
—
|
|
|
|
321
|
|
|
3,398
|
|
|
2,239
|
|
||||||
Compensatory awards released from restriction
|
—
|
|
|
—
|
|
|
(3,300
|
)
|
|
—
|
|
|
|
—
|
|
|
|
305
|
|
|
3,300
|
|
|
—
|
|
||||||
Share-based compensation
|
—
|
|
|
—
|
|
|
1,826
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
1,826
|
|
||||||
Stock dividends
|
—
|
|
|
—
|
|
|
42
|
|
|
(42
|
)
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Cash dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
(780
|
)
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
(780
|
)
|
||||||
Equity adjustment from foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
(6,978
|
)
|
|
|
—
|
|
|
—
|
|
|
(6,978
|
)
|
||||||
Change in fair value of derivative instruments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1,856
|
|
|
|
—
|
|
|
—
|
|
|
1,856
|
|
||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
35,819
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
35,819
|
|
||||||
Balance at March 31, 2015
|
78,374
|
|
|
$
|
784
|
|
|
$
|
207,466
|
|
|
$
|
124,929
|
|
|
|
$
|
(5,918
|
)
|
|
|
(313
|
)
|
|
$
|
(3,147
|
)
|
|
$
|
324,114
|
|
|
Three Months Ended
March 31, |
||||||
|
2015
|
|
2014
|
||||
Earnings per common share—basic
|
|
|
|
||||
Net income
|
$
|
35,819
|
|
|
$
|
55,312
|
|
Weighted-average common shares outstanding—basic
|
77,753
|
|
|
77,370
|
|
||
Basic earnings per common share
|
$
|
0.46
|
|
|
$
|
0.71
|
|
Earnings per common share—diluted
|
|
|
|
||||
Net income
|
$
|
35,819
|
|
|
$
|
55,312
|
|
Add: Interest on convertible debt
|
1,246
|
|
|
1,236
|
|
||
Net income including assumed conversions
|
$
|
37,065
|
|
|
$
|
56,548
|
|
Weighted-average common shares outstanding—basic
|
77,753
|
|
|
77,370
|
|
||
Convertible notes weighted-average shares outstanding
|
15,000
|
|
|
15,000
|
|
||
Options and restricted stock
|
1,143
|
|
|
802
|
|
||
Weighted-average common shares outstanding—diluted
|
93,896
|
|
|
93,172
|
|
||
Dilutive earnings per common share
|
$
|
0.39
|
|
|
$
|
0.61
|
|
|
March 31,
2015 |
|
December 31,
2014
|
||||
Inventories:
|
|
|
|
||||
Raw materials
|
$
|
48,856
|
|
|
$
|
47,661
|
|
Work-in-process
|
590
|
|
|
519
|
|
||
Finished goods
|
132,042
|
|
|
159,049
|
|
||
|
$
|
181,488
|
|
|
$
|
207,229
|
|
|
Useful
Life
(Years)
|
|
March 31, 2015
|
|
December 31, 2014
|
||||||||||||||||||||||||
|
Gross
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
||||||||||||||||||
Non-Amortizing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Trade name, trademark and trade dress and other
|
NA
|
|
$
|
88,590
|
|
|
|
$
|
—
|
|
|
|
$
|
88,590
|
|
|
$
|
88,590
|
|
|
|
$
|
—
|
|
|
|
$
|
88,590
|
|
Amortizing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Patents
|
2-16
|
|
31,581
|
|
|
|
31,351
|
|
|
|
230
|
|
|
31,581
|
|
|
|
31,338
|
|
|
|
243
|
|
||||||
Developed technology and other
|
1-9
|
|
7,961
|
|
|
|
7,961
|
|
|
|
—
|
|
|
7,961
|
|
|
|
7,961
|
|
|
|
—
|
|
||||||
Total intangible assets
|
|
|
$
|
128,132
|
|
|
|
$
|
39,312
|
|
|
|
$
|
88,820
|
|
|
$
|
128,132
|
|
|
|
$
|
39,299
|
|
|
|
$
|
88,833
|
|
Remainder of 2015
|
$
|
38
|
|
2016
|
51
|
|
|
2017
|
51
|
|
|
2018
|
51
|
|
|
2019
|
39
|
|
|
|
$
|
230
|
|
|
Three Months Ended
March 31, |
||||||
|
2015
|
|
2014
|
||||
Beginning balance
|
$
|
5,607
|
|
|
$
|
6,406
|
|
Provision
|
1,803
|
|
|
2,865
|
|
||
Claims paid/costs incurred
|
(1,002
|
)
|
|
(1,326
|
)
|
||
Ending balance
|
$
|
6,408
|
|
|
$
|
7,945
|
|
Tax Jurisdiction
|
|
Years No Longer Subject to Audit
|
U.S. federal
|
|
2010 and prior
|
California (United States)
|
|
2009 and prior
|
Canada
|
|
2006 and prior
|
Japan
|
|
2008 and prior
|
South Korea
|
|
2009 and prior
|
United Kingdom
|
|
2010 and prior
|
Remainder of 2015
|
$
|
31,421
|
|
2016
|
12,682
|
|
|
2017
|
3,113
|
|
|
2018
|
6
|
|
|
|
$
|
47,222
|
|
|
Three Months Ended
March 31, |
||||||
(In thousands)
|
2015
|
|
2014
|
||||
Cost of sales
|
$
|
337
|
|
|
$
|
309
|
|
Operating expenses
|
5,033
|
|
|
5,026
|
|
||
Total cost of share-based compensation included in income, before income tax
|
$
|
5,370
|
|
|
$
|
5,335
|
|
|
Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
March 31, 2015
|
|
|
|
|
|
|
|
||||||||
Foreign currency derivative instruments—asset position
|
$
|
3,911
|
|
|
$
|
—
|
|
|
$
|
3,911
|
|
|
$
|
—
|
|
Foreign currency derivative instruments—liability position
|
(81
|
)
|
|
—
|
|
|
(81
|
)
|
|
—
|
|
||||
|
$
|
3,830
|
|
|
$
|
—
|
|
|
$
|
3,830
|
|
|
$
|
—
|
|
December 31, 2014
|
|
|
|
|
|
|
|
||||||||
Foreign currency derivative instruments—asset position
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
—
|
|
Foreign currency derivative instruments—liability position
|
(246
|
)
|
|
—
|
|
|
(246
|
)
|
|
—
|
|
||||
|
$
|
(206
|
)
|
|
$
|
—
|
|
|
$
|
(206
|
)
|
|
$
|
—
|
|
|
March 31, 2015
|
|
December 31, 2014
|
||||||||||||
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
||||||||
Convertible notes
(1)
|
$
|
108,776
|
|
|
$
|
145,204
|
|
|
$
|
108,574
|
|
|
$
|
126,222
|
|
ABL Facility
(2)
|
$
|
81,000
|
|
|
$
|
81,000
|
|
|
$
|
15,235
|
|
|
$
|
15,235
|
|
Japan ABL Facility
(2)
|
$
|
13,318
|
|
|
$
|
13,318
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Standby letters of credit
(3)
|
$
|
1,101
|
|
|
$
|
1,101
|
|
|
$
|
1,142
|
|
|
$
|
1,142
|
|
|
(1)
|
The carrying value of the convertible notes at
March 31, 2015
and December 31,
2014
, is net of the unamortized discount of
$3,724,000
and
$3,926,000
, respectively (see
Note 2
). The fair value of the convertible notes was determined based on secondary quoted market prices, and as such is classified within Level 2 of the fair value hierarchy.
|
(2)
|
The carrying value of amounts outstanding under the Company's ABL Facility and Japan ABL Facility approximate their fair values as the amounts outstanding are due within one year or less. The fair value of this debt is categorized within Level 2 of the fair value hierarchy.
|
(3)
|
The carrying value of the Company's standby letters of credit approximates the fair value as they represent the Company’s contingent obligation to perform in accordance with the underlying contracts. There were no amounts drawn from these letters of credit as of
March 31, 2015
and December 31,
2014
. The fair value of this contingent obligation is categorized within Level 2 of the fair value hierarchy.
|
|
Asset Derivatives
|
||||||||||
March 31, 2015
|
|
December 31, 2014
|
|||||||||
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|||||
Derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts
|
Other current assets
|
|
$
|
2,059
|
|
|
Other current assets
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
||||
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts
|
Other current assets
|
|
$
|
1,852
|
|
|
Other current assets
|
|
$
|
40
|
|
|
Liability Derivatives
|
||||||||||
March 31, 2015
|
|
December 31, 2014
|
|||||||||
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|||||
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts
|
Accounts payable and
accrued expenses
|
|
$
|
81
|
|
|
Accounts payable and
accrued expenses
|
|
$
|
246
|
|
|
|
Gain (Loss) Recognized in
Other Comprehensive Income
(Effective Portion)
|
||||||
|
|
Three Months Ended
March 31, |
||||||
Derivatives designated as cash flow hedging instruments
|
|
2015
|
|
2014
|
||||
Foreign currency forward contracts
|
|
$
|
1,856
|
|
|
$
|
—
|
|
|
|
Gain (Loss) Recognized in
Other Income (Expense)
(Ineffective Portion)
|
||||||
|
|
Three Months Ended
March 31, |
||||||
Derivatives designated as cash flow hedging instruments
|
|
2015
|
|
2014
|
||||
Foreign currency forward contracts
|
|
$
|
203
|
|
|
$
|
—
|
|
Beginning balance, December 31, 2014
|
|
$
|
(796
|
)
|
Change in fair value of derivative instruments
|
|
2,059
|
|
|
Amounts reclassified from accumulated other comprehensive loss due to derivative instrument ineffectiveness
|
|
(203
|
)
|
|
Foreign currency translation adjustments
|
|
(6,978
|
)
|
|
Ending balance, March 31, 2015
|
|
$
|
(5,918
|
)
|
|
Three Months Ended
March 31, |
||||||
|
2015
|
|
2014
(1)
|
||||
Net sales:
|
|
|
|
||||
Golf Clubs
|
$
|
241,156
|
|
|
$
|
299,538
|
|
Golf Balls
|
43,023
|
|
|
52,336
|
|
||
|
$
|
284,179
|
|
|
$
|
351,874
|
|
Income before income taxes:
|
|
|
|
||||
Golf Clubs
|
$
|
40,940
|
|
|
$
|
63,111
|
|
Golf Balls
|
7,409
|
|
|
11,355
|
|
||
Reconciling items
(2)
|
(10,892
|
)
|
|
(17,680
|
)
|
||
|
$
|
37,457
|
|
|
$
|
56,786
|
|
Additions to long-lived assets:
|
|
|
|
||||
Golf Clubs
|
$
|
2,083
|
|
|
$
|
2,915
|
|
Golf Balls
|
566
|
|
|
101
|
|
||
|
$
|
2,649
|
|
|
$
|
3,016
|
|
|
(1)
|
The prior year amounts have been reclassified to reflect the Company's current year allocation methodology related to freight revenue and costs, certain discounts and other reserves not specific to a product type. For the three months ended March 31, 2014, this resulted in increases to net sales and income before income taxes of
$374,000
in the golf clubs segment, and corresponding decreases to net sales and income before income taxes in the golf balls segment.
|
(2)
|
Reconciling items represent corporate general and administrative expenses and other income (expense) not included by management in determining segment profitability. The change in reconciling items in the three months ended March 31, 2015 compared to the three months ended March 31, 2014 was primarily due to an increase in net foreign currency gains combined with a decrease in corporate general and administrative expenses primarily due to decreases in employee costs and legal expenses.
|
|
|
Decline
|
||||||||||||
|
2015
|
|
2014
(1)
|
|
Dollars
|
|
Percent
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Golf clubs
|
$
|
241.2
|
|
|
$
|
299.6
|
|
|
$
|
(58.4
|
)
|
|
(19
|
)%
|
Golf balls
|
43.0
|
|
|
52.3
|
|
|
(9.3
|
)
|
|
(18
|
)%
|
|||
|
$
|
284.2
|
|
|
$
|
351.9
|
|
|
$
|
(67.7
|
)
|
|
(19
|
)%
|
|
|
Three Months Ended
March 31, |
|
Decline
|
|||||||||||
|
2015
|
|
2014
(1)
|
|
Dollars
|
|
Percent
|
|
||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Woods
|
$
|
89.5
|
|
|
$
|
128.5
|
|
|
$
|
(39.0
|
)
|
|
(30
|
)%
|
Irons
|
61.6
|
|
|
72.6
|
|
|
(11.0
|
)
|
|
(15
|
)%
|
|||
Putters
|
30.9
|
|
|
31.6
|
|
|
(0.7
|
)
|
|
(2
|
)%
|
|||
Accessories and other
|
59.2
|
|
|
66.9
|
|
|
(7.7
|
)
|
|
(12
|
)%
|
|||
|
$
|
241.2
|
|
|
$
|
299.6
|
|
|
$
|
(58.4
|
)
|
|
(19
|
)%
|
|
|
|
Three Months Ended
March 31, |
|
Growth/(Decline)
|
|||||||||||
|
2015
|
|
2014
(1)
|
|
Dollars
|
|
Percent
|
|||||||
Income before income taxes:
|
|
|
|
|
|
|
|
|||||||
Golf clubs
|
$
|
40.9
|
|
|
$
|
63.1
|
|
|
$
|
(22.2
|
)
|
|
35
|
%
|
Golf balls
|
7.4
|
|
|
11.3
|
|
|
(3.9
|
)
|
|
35
|
%
|
|||
Reconciling items
(2)
|
(10.8
|
)
|
|
(17.6
|
)
|
|
6.8
|
|
|
39
|
%
|
|||
|
$
|
37.5
|
|
|
$
|
56.8
|
|
|
$
|
(19.3
|
)
|
|
34
|
%
|
|
(1)
|
The prior year amounts have been reclassified to reflect the Company's current year allocation methodology related to freight revenue and costs, certain discounts and other reserves not specific to a product type. This resulted in an increase to income before income taxes of $0.4 million in the golf clubs segment, and a corresponding decrease in income before income taxes in the golf balls segment.
|
(2)
|
Reconciling items represent corporate general and administrative expenses and other income (expense) not included by management in determining segment profitability. The change in reconciling items in the three months ended March 31, 2015 compared to the first quarter of 2014 was primarily due to an increase in net foreign currency gains combined with a decrease in corporate general and administrative expenses primarily due to decreases in employee costs and legal expenses.
|
|
Payments Due By Period
|
||||||||||||||||||
|
Total
|
|
Less than
1 Year
|
|
1-3 Years
|
|
4-5 Years
|
|
More than
5 Years
|
||||||||||
|
(in millions)
|
||||||||||||||||||
Convertible notes
(1)
|
$
|
112.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
112.5
|
|
|
$
|
—
|
|
Interest on convertible notes
(1)
|
18.4
|
|
|
4.2
|
|
|
8.4
|
|
|
5.8
|
|
|
—
|
|
|||||
ABL Facility
|
81.0
|
|
|
81.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Japan ABL Facility
|
13.3
|
|
|
13.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Capital leases
(2)
|
0.6
|
|
|
0.4
|
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|||||
Operating leases
(3)
|
20.6
|
|
|
9.4
|
|
|
8.8
|
|
|
1.7
|
|
|
0.7
|
|
|||||
Unconditional purchase obligations
(4)
|
47.2
|
|
|
31.4
|
|
|
15.8
|
|
|
—
|
|
|
—
|
|
|||||
Uncertain tax contingencies
(5)
|
3.6
|
|
|
0.7
|
|
|
0.4
|
|
|
0.7
|
|
|
1.8
|
|
|||||
Total
|
$
|
297.2
|
|
|
$
|
140.4
|
|
|
$
|
33.5
|
|
|
$
|
120.8
|
|
|
$
|
2.5
|
|
|
(1)
|
In August 2012, the Company issued $112.5 million of convertible notes due August 15, 2019. Interest of 3.75% per year on the principal amount is payable semiannually in arrears on February 15 and August 15 of each year.
|
(2)
|
Amounts represent future minimum lease payments. Capital lease obligations are included in accounts payable and accrued expenses and other long-term liabilities in the accompanying consolidated condensed balance sheets.
|
(3)
|
The Company leases certain warehouse, distribution and office facilities, vehicles and office equipment under operating leases. The amounts presented in this line item represent commitments for minimum lease payments under non-cancelable operating leases.
|
(4)
|
During the normal course of its business, the Company enters into agreements to purchase goods and services, including purchase commitments for production materials, endorsement agreements with professional golfers and other endorsers, employment and consulting agreements, and intellectual property licensing agreements pursuant to which the Company is required to pay royalty fees. It is not possible to determine the amounts the Company will ultimately be required to pay under these agreements as they are subject to many variables including performance-based bonuses, severance arrangements, the Company’s sales levels, and reductions in payment obligations if designated minimum performance criteria are not achieved. The amounts listed approximate minimum purchase obligations, base compensation, and guaranteed minimum royalty payments the Company is obligated to pay under these agreements. The actual amounts paid under some of these agreements may be higher or lower than the amounts included. In the aggregate, the actual amount paid under these obligations is likely to be higher than the 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 undocumented except for an invoice. Such unconditional purchase obligations are generally outstanding for periods less than a year and are settled by cash payments upon delivery of goods and services and are not reflected in this line item.
|
(5)
|
Amount represents the current and non-current portions of uncertain income tax positions as recorded on the Company's consolidated condensed balance sheet as of
March 31, 2015
. Amount excludes uncertain income tax positions that the Company would be able to offset against deferred taxes. For further discussion see
Note 8
“Income Taxes” to the Notes to Consolidated Condensed Financial Statements in Part I, Item 1 of this Form 10-Q.
|
|
Three Months Ended March 31, 2015
|
|||||||||||||||||||
|
Total Number
of Shares Purchased |
|
Weighted
Average Price Paid per Share |
|
Total Number of Shares Purchased as Part of Publicly Announced Program
|
|
Maximum Dollar Value that May Yet Be Purchased Under the Program
|
|||||||||||||
January 1, 2015-January 31, 2015
|
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
|
$
|
—
|
|
February 1, 2015-February 28, 2015
|
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
|
$
|
—
|
|
March 1, 2015-March 31, 2015
|
|
159,005
|
|
|
|
|
$
|
8.82
|
|
|
|
|
1,402,424
|
|
|
|
|
$
|
47,585,145
|
|
Total
|
|
159,005
|
|
|
|
|
$
|
8.82
|
|
|
|
|
1,402,424
|
|
|
|
|
$
|
47,585,145
|
|
|
CALLAWAY GOLF COMPANY
|
|
|
|
By:
|
/s/ Jennifer Thomas
|
|
Jennifer Thomas
|
|
Vice President and
Chief Accounting Officer
|
Exhibit
|
|
Description
|
|
10.3
|
|
|
First Amendment to Amended & Restated Executive Entrustment Agreement effective March 24, 2015, by and between the Company and Alex Boezeman.
|
|
|
|
|
31.1
|
|
|
Certification of Oliver G. Brewer III pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
||
31.2
|
|
|
Certification of Bradley J. Holiday pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
||
32.1
|
|
|
Certification of Oliver G. Brewer III and Bradley J. Holiday pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
||
101.1
|
|
|
XBRL Instance Document
|
|
|
||
101.2
|
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
||
101.3
|
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
||
101.4
|
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
||
101.5
|
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
||
101.6
|
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
1.
|
Term
. Section 2 of the Agreement is amended to read:
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DIRECTOR
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COMPANY
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Callaway Golf K.K.
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/s/ Alex M. Boezeman
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By: /s/ Bradley J. Holiday
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Alex M. Boezeman
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Bradley J. Holiday, Director
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S
/ O
LIVER
G. B
REWER
III
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Oliver G. Brewer III
President and Chief Executive Officer
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S
/ B
RADLEY
J. H
OLIDAY
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Bradley J. Holiday
Senior Executive Vice President and
Chief Financial Officer
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S
/ O
LIVER
G. B
REWER
III
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Oliver G. Brewer III
President and Chief Executive Officer
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/
S
/ B
RADLEY
J. H
OLIDAY
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Bradley J. Holiday
Senior Executive Vice President and
Chief Financial Officer
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