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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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ý
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Accelerated filer
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o
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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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Emerging growth 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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a material impact on the Company's tax provision as a result of the Tax Act;
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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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any unfavorable changes in U.S. trade, tax or other policies, including restrictions on imports or an increase in import tariffs;
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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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significant fluctuations in foreign currency exchange rates;
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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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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,
2018 |
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December 31,
2017 |
||||
ASSETS
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|
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|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
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38,718
|
|
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$
|
85,674
|
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Accounts receivable, net
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265,240
|
|
|
94,725
|
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||
Inventories
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262,290
|
|
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262,486
|
|
||
Income taxes receivable
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4,949
|
|
|
542
|
|
||
Other current assets
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24,695
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|
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22,557
|
|
||
Total current assets
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595,892
|
|
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465,984
|
|
||
Property, plant and equipment, net
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72,881
|
|
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70,227
|
|
||
Intangible assets, net (Note 7)
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225,491
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|
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225,758
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|
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Goodwill (Note 7)
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56,694
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|
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56,429
|
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||
Deferred taxes, net
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82,698
|
|
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91,398
|
|
||
Investment in golf-related venture (Note 9)
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70,777
|
|
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70,495
|
|
||
Other assets
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11,115
|
|
|
10,866
|
|
||
Total assets
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$
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1,115,548
|
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$
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991,157
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LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable and accrued expenses
|
$
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181,779
|
|
|
$
|
176,127
|
|
Accrued employee compensation and benefits
|
27,578
|
|
|
40,173
|
|
||
Asset-based credit facilities
|
178,523
|
|
|
87,755
|
|
||
Accrued warranty expense
|
7,311
|
|
|
6,657
|
|
||
Equipment note, short-term
|
2,378
|
|
|
2,367
|
|
||
Income tax liability
|
3,905
|
|
|
1,295
|
|
||
Total current liabilities
|
401,474
|
|
|
314,374
|
|
||
Long-term liabilities:
|
|
|
|
||||
Income tax payable
|
4,754
|
|
|
4,602
|
|
||
Deferred taxes, net
|
1,871
|
|
|
1,822
|
|
||
Long-term other
|
2,039
|
|
|
1,536
|
|
||
Equipment note, long-term
|
8,899
|
|
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9,448
|
|
||
Commitments and contingencies (Note 12)
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Preferred stock, $0.01 par value, 3,000,000 shares authorized, none issued and outstanding at March 31, 2018 and December 31, 2017
|
—
|
|
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—
|
|
||
Common stock, $0.01 par value, 240,000,000 shares authorized, 95,648,648 and 95,042,557 shares issued at March 31, 2018 and December 31, 2017, respectively
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956
|
|
|
950
|
|
||
Additional paid-in capital
|
333,385
|
|
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335,222
|
|
||
Retained earnings
|
374,758
|
|
|
324,081
|
|
||
Accumulated other comprehensive loss
|
(3,839
|
)
|
|
(6,166
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)
|
||
Less: Common stock held in treasury, at cost, 1,227,595 and 411,013 shares at March 31, 2018 and December 31, 2017, respectively
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(18,958
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)
|
|
(4,456
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)
|
||
Total Callaway Golf Company shareholders’ equity
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686,302
|
|
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649,631
|
|
||
Non-controlling interest in consolidated entity (Note 8)
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10,209
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9,744
|
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||
Total shareholders’ equity
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696,511
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|
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659,375
|
|
||
Total liabilities and shareholders’ equity
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$
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1,115,548
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|
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$
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991,157
|
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Three Months Ended March 31,
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||||||
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2018
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2017
|
||||
Net sales
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$
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403,191
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$
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308,927
|
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Cost of sales
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202,729
|
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161,212
|
|
||
Gross profit
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200,462
|
|
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147,715
|
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||
Operating expenses:
|
|
|
|
||||
Selling expense
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82,960
|
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71,762
|
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||
General and administrative expense
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21,894
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22,864
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||
Research and development expense
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9,624
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8,882
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Total operating expenses
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114,478
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103,508
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||
Income from operations
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85,984
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44,207
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Interest income
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52
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|
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31
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|
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Interest expense
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(1,580
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)
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(746
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)
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Other expense, net
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(4,506
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)
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(4,406
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)
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||
Income before income taxes
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79,950
|
|
|
39,086
|
|
||
Income tax provision
|
17,219
|
|
|
13,206
|
|
||
Net income
|
62,731
|
|
|
25,880
|
|
||
Less: Net income (loss) attributable to non-controlling interest
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(124
|
)
|
|
191
|
|
||
Net income attributable to Callaway Golf Company
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$
|
62,855
|
|
|
$
|
25,689
|
|
|
|
|
|
||||
Earnings per common share:
|
|
|
|
||||
Basic
|
$
|
0.66
|
|
|
$
|
0.27
|
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Diluted
|
$
|
0.65
|
|
|
$
|
0.27
|
|
Weighted-average common shares outstanding:
|
|
|
|
||||
Basic
|
94,975
|
|
|
94,070
|
|
||
Diluted
|
97,038
|
|
|
95,948
|
|
||
|
|
|
|
||||
Dividends declared per common share
|
$
|
0.01
|
|
|
$
|
0.01
|
|
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Three Months Ended March 31,
|
||||||
|
2018
|
|
2017
|
||||
Net income
|
$
|
62,731
|
|
|
$
|
25,880
|
|
Other comprehensive income (loss):
|
|
|
|
||||
Change in derivative instruments
|
(1,556
|
)
|
|
(3,156
|
)
|
||
Foreign currency translation adjustments
|
4,721
|
|
|
5,988
|
|
||
Comprehensive income, before income tax on other comprehensive income items
|
65,896
|
|
|
28,712
|
|
||
Income tax expense (benefit) on derivative instruments
|
(249
|
)
|
|
434
|
|
||
Comprehensive income
|
65,647
|
|
|
29,146
|
|
||
Less: Comprehensive income attributable to non-controlling interests
|
589
|
|
|
269
|
|
||
Comprehensive income attributable to Callaway Golf Company
|
$
|
65,058
|
|
|
$
|
28,877
|
|
|
Three Months Ended March 31, 2018
|
||||||
|
2018
|
|
2017
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
62,731
|
|
|
$
|
25,880
|
|
Adjustments to reconcile net income to net cash used in operating activities
|
|
|
|
||||
Depreciation and amortization
|
4,737
|
|
|
4,319
|
|
||
Deferred taxes, net
|
14,035
|
|
|
15,630
|
|
||
Non-cash share-based compensation
|
2,999
|
|
|
3,218
|
|
||
Gain on disposal of long-lived assets
|
(3
|
)
|
|
(34
|
)
|
||
Unrealized losses on foreign currency hedges
|
2,060
|
|
|
3,111
|
|
||
Change in assets and liabilities, net of effect from acquisitions:
|
|
|
|
||||
Accounts receivable, net
|
(185,490
|
)
|
|
(106,254
|
)
|
||
Inventories
|
4,134
|
|
|
20,410
|
|
||
Other assets
|
(760
|
)
|
|
(1,565
|
)
|
||
Accounts payable and accrued expenses
|
200
|
|
|
(17,692
|
)
|
||
Accrued employee compensation and benefits
|
(12,883
|
)
|
|
(8,037
|
)
|
||
Accrued warranty expense
|
654
|
|
|
550
|
|
||
Income taxes receivable/payable, net
|
(1,748
|
)
|
|
(2,326
|
)
|
||
Other liabilities
|
60
|
|
|
(15
|
)
|
||
Net cash used in operating activities
|
(109,274
|
)
|
|
(62,805
|
)
|
||
Cash flows from investing activities:
|
|
|
|
||||
Capital expenditures
|
(7,964
|
)
|
|
(6,301
|
)
|
||
Investments in golf related investments
|
(282
|
)
|
|
—
|
|
||
Acquisitions, net of cash acquired
|
—
|
|
|
(58,629
|
)
|
||
Proceeds from sales of property and equipment
|
—
|
|
|
38
|
|
||
Net cash used in investing activities
|
(8,246
|
)
|
|
(64,892
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from credit facilities, net
|
90,768
|
|
|
64,988
|
|
||
Exercise of stock options
|
752
|
|
|
484
|
|
||
Repayments of long-term debt
|
(539
|
)
|
|
—
|
|
||
Dividends paid, net
|
(954
|
)
|
|
(939
|
)
|
||
Acquisition of treasury stock
|
(20,123
|
)
|
|
(15,369
|
)
|
||
Net cash provided by financing activities
|
69,904
|
|
|
49,164
|
|
||
Effect of exchange rate changes on cash and cash equivalents
|
660
|
|
|
547
|
|
||
Net decrease in cash and cash equivalents
|
(46,956
|
)
|
|
(77,986
|
)
|
||
Cash and cash equivalents at beginning of period
|
85,674
|
|
|
125,975
|
|
||
Cash and cash equivalents at end of period
|
$
|
38,718
|
|
|
$
|
47,989
|
|
Supplemental disclosures:
|
|
|
|
||||
Cash paid for income taxes, net
|
$
|
4,244
|
|
|
$
|
4,460
|
|
Cash paid for interest and fees
|
$
|
1,317
|
|
|
$
|
494
|
|
Non-cash investing and financing activities:
|
|
|
|
||||
Issuance of treasury stock and common stock for compensatory stock awards released from restriction
|
$
|
4,331
|
|
|
$
|
3,099
|
|
Accrued capital expenditures at period-end
|
$
|
746
|
|
|
$
|
1,267
|
|
|
Shareholders' Equity Callaway Golf Company
|
|
|
|
|
||||||||||||||||||||||||||||||||||||
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Treasury Stock
|
|
Total Callaway Golf Company Shareholders' Equity
|
|
Non-
Controlling Interest
|
|
|
|
|||||||||||||||||||||||||
|
Shares
|
|
Amount
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
Total
|
|||||||||||||||||||||||||||
Balance at December 31, 2017
|
95,043
|
|
|
$
|
950
|
|
|
$
|
335,222
|
|
|
$
|
324,081
|
|
|
|
$
|
(6,166
|
)
|
|
|
(411
|
)
|
|
$
|
(4,456
|
)
|
|
|
$
|
649,631
|
|
|
|
$
|
9,744
|
|
|
$
|
659,375
|
|
Adoption of accounting standard
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,185
|
)
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
(11,185
|
)
|
|
|
—
|
|
|
(11,185
|
)
|
||||||||
Acquisition of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,273
|
)
|
|
(20,123
|
)
|
|
|
(20,123
|
)
|
|
|
—
|
|
|
(20,123
|
)
|
||||||||
Exercise of stock options
|
—
|
|
|
—
|
|
|
(538
|
)
|
|
—
|
|
|
|
—
|
|
|
|
98
|
|
|
1,290
|
|
|
|
752
|
|
|
|
—
|
|
|
752
|
|
||||||||
Compensatory awards released from restriction
|
606
|
|
|
6
|
|
|
(4,298
|
)
|
|
(39
|
)
|
|
|
—
|
|
|
|
358
|
|
|
4,331
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
||||||||
Share-based compensation
|
—
|
|
|
—
|
|
|
2,999
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
2,999
|
|
|
|
—
|
|
|
2,999
|
|
||||||||
Cash dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
(954
|
)
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
(954
|
)
|
|
|
—
|
|
|
(954
|
)
|
||||||||
Equity adjustment from foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
4,132
|
|
|
|
—
|
|
|
—
|
|
|
|
4,132
|
|
|
|
589
|
|
|
4,721
|
|
||||||||
Change in fair value of derivative instruments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
(1,805
|
)
|
|
|
—
|
|
|
—
|
|
|
|
(1,805
|
)
|
|
|
—
|
|
|
(1,805
|
)
|
||||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
62,855
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
62,855
|
|
|
|
(124
|
)
|
|
62,731
|
|
||||||||
Balance at March 31, 2018
|
95,649
|
|
|
$
|
956
|
|
|
$
|
333,385
|
|
|
$
|
374,758
|
|
|
|
$
|
(3,839
|
)
|
|
|
(1,228
|
)
|
|
$
|
(18,958
|
)
|
|
|
$
|
686,302
|
|
|
|
$
|
10,209
|
|
|
$
|
696,511
|
|
Balance Sheet
|
Balance at
December 31, 2017
|
|
Adjustments Due To
Topic 606
|
|
Balance at
January 1, 2018
|
||||||
Accounts receivable, net
|
$
|
94,725
|
|
|
$
|
(16,156
|
)
|
|
$
|
78,569
|
|
Deferred taxes, net
|
$
|
91,398
|
|
|
$
|
4,971
|
|
|
$
|
96,369
|
|
Retained earnings
|
$
|
324,081
|
|
|
$
|
(11,185
|
)
|
|
$
|
312,896
|
|
|
Three Months Ended March 31, 2018
|
||||||||||
|
As Reported
|
|
Balances Without Adoption of Topic 606
|
|
Effect of Change
Increase/(Decrease)
|
||||||
Net Sales
|
$
|
403,191
|
|
|
$
|
411,634
|
|
|
$
|
(8,443
|
)
|
Income tax provision
|
$
|
17,219
|
|
|
$
|
19,037
|
|
|
$
|
(1,818
|
)
|
Net income
|
$
|
62,731
|
|
|
$
|
69,356
|
|
|
$
|
(6,625
|
)
|
|
March 31, 2018
|
||||||||||
|
As Reported
|
|
Balances Without Adoption of Topic 606
|
|
Effect of Change
Increase/(Decrease) |
||||||
Assets
|
|
|
|
|
|
||||||
Accounts receivable, net
|
$
|
265,240
|
|
|
$
|
289,839
|
|
|
$
|
(24,599
|
)
|
Deferred taxes, net
|
$
|
82,698
|
|
|
$
|
77,008
|
|
|
$
|
5,690
|
|
|
|
|
|
|
|
||||||
Liabilities and Equity
|
|
|
|
|
|
||||||
Income tax liability
|
$
|
3,905
|
|
|
$
|
5,004
|
|
|
$
|
(1,099
|
)
|
Retained earnings
|
$
|
374,758
|
|
|
$
|
392,568
|
|
|
$
|
(17,810
|
)
|
|
Three Months Ended March 31, 2018
|
||||||||||||||
|
Operating Segments
|
||||||||||||||
|
Golf Clubs
|
|
Golf Balls
|
|
Gear, Accessories & Other
|
|
Total
|
||||||||
Major product category:
|
|
||||||||||||||
Woods
|
$
|
128,802
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
128,802
|
|
Irons
|
95,209
|
|
|
—
|
|
|
—
|
|
|
95,209
|
|
||||
Putters
|
33,430
|
|
|
—
|
|
|
—
|
|
|
33,430
|
|
||||
Golf Balls
|
—
|
|
|
54,922
|
|
|
—
|
|
|
54,922
|
|
||||
Gear, Accessories and Other
|
—
|
|
|
—
|
|
|
90,828
|
|
|
90,828
|
|
||||
|
$
|
257,441
|
|
|
$
|
54,922
|
|
|
$
|
90,828
|
|
|
$
|
403,191
|
|
|
Three Months Ended
March 31, 2018 |
||
Major Geographic Region:
|
(In thousands)
|
||
United States
|
$
|
235,161
|
|
Europe
|
51,202
|
|
|
Japan
|
69,275
|
|
|
Rest of Asia
|
24,775
|
|
|
Other foreign countries
|
22,778
|
|
|
|
$
|
403,191
|
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
Beginning balance
|
$
|
4,447
|
|
|
$
|
5,728
|
|
Provision
|
(595
|
)
|
|
737
|
|
||
Write-off of uncollectible amounts, net of recoveries
|
(43
|
)
|
|
(2,765
|
)
|
||
Ending balance
|
$
|
3,809
|
|
|
$
|
3,700
|
|
|
At January 11, 2017
|
|||
Assets Acquired
|
|
|
||
Cash
|
|
$
|
8,061
|
|
Accounts receivable
|
|
7,696
|
|
|
Inventory
|
|
7,092
|
|
|
Other current assets
|
|
328
|
|
|
Property and equipment
|
|
2,369
|
|
|
Intangibles - trade name
|
|
49,700
|
|
|
Intangibles - customer & distributor relationships
|
|
1,500
|
|
|
Intangibles - non-compete agreements
|
|
150
|
|
|
Goodwill
|
|
5,885
|
|
|
Total assets acquired
|
|
82,781
|
|
|
Liabilities Assumed
|
|
|
||
Accounts Payable and accrued liabilities
|
|
16,830
|
|
|
Net assets acquired
|
|
$
|
65,951
|
|
|
At August 17, 2017
|
|||
Assets Acquired
|
|
|
||
Cash
|
|
$
|
663
|
|
Accounts receivable
|
|
9,715
|
|
|
Inventory
|
|
11,909
|
|
|
Other current assets
|
|
549
|
|
|
Property and equipment
|
|
4,327
|
|
|
Other assets
|
|
117
|
|
|
Intangibles - trade name
|
|
78,400
|
|
|
Intangibles - licensing agreement
|
|
1,100
|
|
|
Intangibles - customer & distributor relationships
|
|
4,450
|
|
|
Intangibles - non-compete agreements
|
|
600
|
|
|
Goodwill
|
|
23,640
|
|
|
Total assets acquired
|
|
135,470
|
|
|
Liabilities Assumed
|
|
|
||
Accounts Payable and accrued liabilities
|
|
10,892
|
|
|
Net assets acquired
|
|
$
|
124,578
|
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
Earnings per common share—basic
|
|
|
|
||||
Net income
|
$
|
62,731
|
|
|
$
|
25,880
|
|
Less: Net income (loss) attributable to non-controlling interests
|
(124
|
)
|
|
191
|
|
||
Net income attributable to Callaway Golf Company
|
$
|
62,855
|
|
|
$
|
25,689
|
|
Weighted-average common shares outstanding—basic
|
94,975
|
|
|
94,070
|
|
||
Basic earnings per common share
|
$
|
0.66
|
|
|
$
|
0.27
|
|
Earnings per common share—diluted
|
|
|
|
||||
Net income attributable to Callaway Golf Company
|
$
|
62,855
|
|
|
$
|
25,689
|
|
Weighted-average common shares outstanding—basic
|
94,975
|
|
|
94,070
|
|
||
Options and restricted stock
|
2,063
|
|
|
1,878
|
|
||
Weighted-average common shares outstanding—diluted
|
97,038
|
|
|
95,948
|
|
||
Dilutive earnings per common share
|
$
|
0.65
|
|
|
$
|
0.27
|
|
|
March 31,
2018 |
|
December 31, 2017
|
||||
Inventories:
|
|
|
|
||||
Raw materials
|
$
|
70,357
|
|
|
$
|
67,785
|
|
Work-in-process
|
1,027
|
|
|
868
|
|
||
Finished goods
|
190,906
|
|
|
193,833
|
|
||
|
$
|
262,290
|
|
|
$
|
262,486
|
|
|
Useful
Life
(Years)
|
|
March 31, 2018
|
|
December 31, 2017
|
||||||||||||||||||||||||
|
Gross
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
||||||||||||||||||
Non-Amortizing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Trade name, trademark and trade dress and other
|
NA
|
|
$
|
218,364
|
|
|
|
$
|
—
|
|
|
|
$
|
218,364
|
|
|
$
|
218,364
|
|
|
|
$
|
—
|
|
|
|
$
|
218,364
|
|
Amortizing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Patents
|
2-16
|
|
31,581
|
|
|
|
31,505
|
|
|
|
76
|
|
|
31,581
|
|
|
|
31,491
|
|
|
|
90
|
|
||||||
Other
|
1-9
|
|
15,780
|
|
|
|
8,729
|
|
|
|
7,051
|
|
|
15,780
|
|
|
|
8,476
|
|
|
|
7,304
|
|
||||||
Total intangible assets
|
|
|
$
|
265,725
|
|
|
|
$
|
40,234
|
|
|
|
$
|
225,491
|
|
|
$
|
265,725
|
|
|
|
$
|
39,967
|
|
|
|
$
|
225,758
|
|
Remainder of 2018
|
$
|
800
|
|
2019
|
1,053
|
|
|
2020
|
966
|
|
|
2021
|
910
|
|
|
2022
|
734
|
|
|
2023
|
595
|
|
|
Thereafter
|
2,069
|
|
|
|
$
|
7,127
|
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
Beginning balance
|
$
|
6,657
|
|
|
$
|
5,395
|
|
Provision
|
2,366
|
|
|
1,922
|
|
||
Claims paid/costs incurred
|
(1,712
|
)
|
|
(1,372
|
)
|
||
Ending balance
|
$
|
7,311
|
|
|
$
|
5,945
|
|
Tax Jurisdiction
|
|
Years No Longer Subject to Audit
|
U.S. federal
|
|
2010 and prior
|
California (United States)
|
|
2008 and prior
|
Canada
|
|
2009 and prior
|
Japan
|
|
2011 and prior
|
South Korea
|
|
2012 and prior
|
United Kingdom
|
|
2013 and prior
|
Remainder of 2018
|
$
|
48,252
|
|
2019
|
18,979
|
|
|
2020
|
8,218
|
|
|
2021
|
4,033
|
|
|
2022
|
1,627
|
|
|
|
$
|
81,109
|
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
|
(In thousands)
|
||||||
Cost of sales
|
$
|
213
|
|
|
$
|
217
|
|
Operating expenses
|
2,786
|
|
|
2,968
|
|
||
Total cost of share-based compensation included in income, before income tax
|
$
|
2,999
|
|
|
$
|
3,185
|
|
|
Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
March 31, 2018
|
|
|
|
|
|
|
|
||||||||
Foreign currency forward contracts—asset position
|
$
|
1,119
|
|
|
$
|
—
|
|
|
$
|
1,119
|
|
|
$
|
—
|
|
Foreign currency forward contracts—liability position
|
(4,684
|
)
|
|
—
|
|
|
(4,684
|
)
|
|
—
|
|
||||
|
$
|
(3,565
|
)
|
|
$
|
—
|
|
|
$
|
(3,565
|
)
|
|
$
|
—
|
|
December 31, 2017
|
|
|
|
|
|
|
|
||||||||
Foreign currency forward contracts—asset position
|
$
|
179
|
|
|
$
|
—
|
|
|
$
|
179
|
|
|
$
|
—
|
|
Foreign currency forward contracts—liability position
|
(239
|
)
|
|
—
|
|
|
(239
|
)
|
|
—
|
|
||||
|
$
|
(60
|
)
|
|
$
|
—
|
|
|
$
|
(60
|
)
|
|
$
|
—
|
|
|
March 31, 2018
|
|
December 31, 2017
|
||||||||||||
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
||||||||
Primary asset-based revolving credit facility
(1)
|
$
|
155,000
|
|
|
$
|
155,000
|
|
|
$
|
74,000
|
|
|
$
|
74,000
|
|
Japan ABL Facilities
(1)
|
$
|
23,523
|
|
|
$
|
23,523
|
|
|
$
|
13,755
|
|
|
$
|
13,755
|
|
Equipment Note
(2)
|
$
|
11,277
|
|
|
$
|
11,277
|
|
|
$
|
11,815
|
|
|
$
|
11,815
|
|
Standby letters of credit
(3)
|
$
|
1,271
|
|
|
$
|
1,271
|
|
|
$
|
887
|
|
|
$
|
887
|
|
|
(1)
|
The carrying value of the amounts outstanding under the Company's primary asset-based revolving credit facility and Japan ABL Facilities approximates the fair value due to the short-term nature of these obligations. The fair value of this debt is categorized within Level 2 of the fair value hierarchy. See
Note 4
for information on the Company's credit facilities, including certain risks and uncertainties related thereto.
|
(2)
|
In December 2017, the Company entered into the Equipment Note secured by certain equipment at the Company's golf ball manufacturing facility. As of
March 31, 2018
and
December 31, 2017
, the Company had
$11,277,000
and
$11,815,000
, respectively, outstanding under the Equipment Note. The fair value of this debt is categorized within Level 2 of the fair value hierarchy. See
Note 4
for further information.
|
(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. The fair value of this contingent obligation is categorized within Level 2 of the fair value hierarchy.
|
|
Asset Derivatives
|
||||||||||
March 31, 2018
|
|
December 31, 2017
|
|||||||||
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|||||
Derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts
|
Other current assets
|
|
$
|
254
|
|
|
Other current assets
|
|
$
|
168
|
|
|
|
|
|
|
|
|
|
||||
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts
|
Other current assets
|
|
$
|
865
|
|
|
Other current assets
|
|
$
|
11
|
|
|
Liability Derivatives
|
||||||||||
March 31, 2018
|
|
December 31, 2017
|
|||||||||
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|||||
Derivatives designated as cash flow hedging instruments:
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts
|
Accounts payable and
accrued expenses
|
|
$
|
1,770
|
|
|
Accounts payable and
accrued expenses
|
|
$
|
194
|
|
|
|
|
|
|
|
|
|
||||
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts
|
Accounts payable and
accrued expenses
|
|
$
|
2,914
|
|
|
Accounts payable and
accrued expenses
|
|
$
|
45
|
|
|
|
Loss Recognized in Other Comprehensive Income
(Effective Portion)
|
||||||
|
|
Three Months Ended
March 31, |
||||||
Derivatives designated as cash flow hedging instruments
|
|
2018
|
|
2017
|
||||
Foreign currency forward contracts
|
|
$
|
(1,601
|
)
|
|
$
|
(2,554
|
)
|
|
|
Loss Reclassified from Other Comprehensive Income into Earnings
(Effective Portion)
|
||||||
|
|
Three Months Ended
March 31, |
||||||
Derivatives designated as cash flow hedging instruments
|
|
2018
|
|
2017
|
||||
Foreign currency forward contracts
|
|
$
|
(45
|
)
|
|
$
|
(902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments
|
|
Foreign Currency Translation
|
|
Total
|
||||||
Accumulated other comprehensive loss, December 31, 2017, after tax
|
|
$
|
(328
|
)
|
|
$
|
(5,838
|
)
|
|
$
|
(6,166
|
)
|
Change in derivative instruments
|
|
(1,601
|
)
|
|
—
|
|
|
(1,601
|
)
|
|||
Net gains reclassified to cost of goods sold
|
|
45
|
|
|
—
|
|
|
45
|
|
|||
Foreign currency translation adjustments
|
|
—
|
|
|
4,132
|
|
|
4,132
|
|
|||
Income tax benefit
|
|
(249
|
)
|
|
—
|
|
|
(249
|
)
|
|||
Accumulated other comprehensive loss, March 31, 2018, after tax
|
|
$
|
(2,133
|
)
|
|
$
|
(1,706
|
)
|
|
$
|
(3,839
|
)
|
|
Three Months Ended
March 31, |
||||||
|
2018
|
|
2017
|
||||
Net sales:
|
|
|
|
||||
Golf Clubs
|
$
|
257,441
|
|
|
$
|
193,591
|
|
Golf Balls
|
54,922
|
|
|
48,224
|
|
||
Gear, Accessories and Other
|
90,828
|
|
|
67,112
|
|
||
|
$
|
403,191
|
|
|
$
|
308,927
|
|
Income before income taxes:
|
|
|
|
||||
Golf Clubs
|
$
|
65,831
|
|
|
$
|
34,953
|
|
Golf Balls
|
12,525
|
|
|
11,521
|
|
||
Gear, Accessories and Other
|
20,337
|
|
|
9,619
|
|
||
Reconciling items
(1)
|
(18,743
|
)
|
|
(17,007
|
)
|
||
|
$
|
79,950
|
|
|
$
|
39,086
|
|
Additions to long-lived assets:
|
|
|
|
||||
Golf Clubs
|
$
|
2,536
|
|
|
$
|
3,795
|
|
Golf Balls
|
2,898
|
|
|
2,536
|
|
||
Gear, Accessories and Other
|
1,382
|
|
|
501
|
|
||
|
$
|
6,816
|
|
|
$
|
6,832
|
|
|
(1)
|
Reconciling items represent corporate general and administrative expenses and other income (expense) not included by management in determining segment profitability.
|
|
March 31, 2018
|
|
December 31, 2017
|
||||
Total Assets:
|
|
|
|
||||
Golf Clubs
|
$
|
314,034
|
|
|
$
|
321,265
|
|
Golf Balls
|
55,645
|
|
|
57,120
|
|
||
Gear, Accessories and Other
|
247,677
|
|
|
236,515
|
|
||
Reconciling items
(1)
|
498,192
|
|
|
376,257
|
|
||
|
$
|
1,115,548
|
|
|
$
|
991,157
|
|
Goodwill:
|
|
|
|
||||
Golf Clubs
|
$
|
27,169
|
|
|
$
|
26,904
|
|
Golf Balls
|
—
|
|
|
—
|
|
||
Gear, Accessories and Other
|
29,525
|
|
|
29,525
|
|
||
|
$
|
56,694
|
|
|
$
|
56,429
|
|
|
(1)
|
Total assets by reportable segment are comprised of net inventory, certain property, plant and equipment, intangible assets and goodwill. Reconciling items represent unallocated corporate assets not segregated between the three segments including cash and cash equivalents, net accounts receivable, and deferred tax assets.
|
|
Three Months Ended
March 31, |
|
Growth
|
|||||||||||
|
2018
|
|
2017
|
|
Dollars
|
|
Percent
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Golf Clubs
|
$
|
257.5
|
|
|
$
|
193.6
|
|
|
$
|
63.9
|
|
|
33.0
|
%
|
Golf Balls
|
54.9
|
|
|
48.2
|
|
|
6.7
|
|
|
13.9
|
%
|
|||
Gear, Accessories and Other
|
90.8
|
|
|
67.1
|
|
|
23.7
|
|
|
35.3
|
%
|
|||
|
$
|
403.2
|
|
|
$
|
308.9
|
|
|
$
|
94.3
|
|
|
30.5
|
%
|
|
Three Months Ended
March 31, |
|
Growth
|
|
Constant Currency Growth vs. 2017
|
|||||||||||
|
2018
|
|
2017
(1)
|
|
Dollars
|
|
Percent
|
|
Percent
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|
|
|||||||
United States
|
$
|
235.2
|
|
|
$
|
178.3
|
|
|
$
|
56.9
|
|
|
31.9
|
%
|
|
31.9%
|
Europe
|
51.2
|
|
|
44.6
|
|
|
6.6
|
|
|
14.8
|
%
|
|
2.5%
|
|||
Japan
|
69.3
|
|
|
46.5
|
|
|
22.8
|
|
|
49.0
|
%
|
|
41.8%
|
|||
Rest of Asia
|
24.8
|
|
|
18.3
|
|
|
6.5
|
|
|
35.5
|
%
|
|
27.5%
|
|||
Other countries
|
22.7
|
|
|
21.2
|
|
|
1.5
|
|
|
7.1
|
%
|
|
4.0%
|
|||
|
$
|
403.2
|
|
|
$
|
308.9
|
|
|
$
|
94.3
|
|
|
30.5
|
%
|
|
27.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
Growth
|
|||||||||||
|
2018
|
|
2017
|
|
Dollars
|
|
Percent
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Gear, Accessories and Other
|
$
|
90.8
|
|
|
$
|
67.1
|
|
|
$
|
23.7
|
|
|
35.3
|
%
|
|
Three Months Ended
March 31, |
|
Growth/(Decline)
|
|||||||||||
|
2018
|
|
2017
|
|
Dollars
|
|
Percent
|
|||||||
Income before income taxes:
|
|
|
|
|
|
|
|
|||||||
Golf Clubs
|
$
|
65.8
|
|
|
$
|
34.9
|
|
|
$
|
30.9
|
|
|
88.5
|
%
|
Golf Balls
|
12.5
|
|
|
11.5
|
|
|
1.0
|
|
|
8.7
|
%
|
|||
Gear, Accessories and Other
|
20.3
|
|
|
9.6
|
|
|
10.7
|
|
|
111.5
|
%
|
|||
Reconciling items
(1)
|
(18.6
|
)
|
|
(16.9
|
)
|
|
(1.7
|
)
|
|
10.1
|
%
|
|||
|
$
|
80.0
|
|
|
$
|
39.1
|
|
|
$
|
40.9
|
|
|
104.6
|
%
|
|
(1)
|
Reconciling items represent corporate general and administrative expenses and other income (expense) not included by management in determining segment profitability.
|
|
Payments Due By Period
|
||||||||||||||||||
|
Total
|
|
Less than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than
5 Years
|
||||||||||
|
(in millions)
|
||||||||||||||||||
Primary Asset-Based Revolving Credit Facility
|
$
|
155.0
|
|
|
$
|
155.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Japan ABL facilities
|
23.5
|
|
|
23.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Capital leases
(1)
|
0.5
|
|
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|||||
Operating leases
(2)
|
54.2
|
|
|
8.8
|
|
|
15.8
|
|
|
12.8
|
|
|
16.8
|
|
|||||
Unconditional purchase obligations
(3)
|
81.1
|
|
|
48.2
|
|
|
27.2
|
|
|
5.7
|
|
|
—
|
|
|||||
Uncertain tax contingencies
(4)
|
4.8
|
|
|
0.6
|
|
|
1.6
|
|
|
0.3
|
|
|
2.3
|
|
|||||
Equipment note
(5)
|
11.3
|
|
|
—
|
|
|
—
|
|
|
11.3
|
|
|
—
|
|
|||||
Interest on equipment note
|
1.1
|
|
|
0.4
|
|
|
0.5
|
|
|
0.2
|
|
|
—
|
|
|||||
Total
|
$
|
331.5
|
|
|
$
|
236.6
|
|
|
$
|
45.3
|
|
|
$
|
30.5
|
|
|
$
|
19.1
|
|
|
(1)
|
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.
|
(2)
|
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.
|
(3)
|
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.
|
(4)
|
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, 2018
. Amounts exclude uncertain income tax positions that the Company would be able to offset against deferred taxes. For further discussion, see
Note 11
“
Income Taxes
” to the Notes to Consolidated Condensed Financial Statements in Part I, Item 1 of this Form 10-Q.
|
(5)
|
In December 2017, the Company entered into a long-term financing agreement (the "Equipment Note") secured by certain equipment at the Company's golf ball manufacturing facility. As of
March 31, 2018
, the Company had
$11.3 million
outstanding under this agreement. For further discussion, see
Note 4
"
Financing Arrangements
" to the Notes to Consolidated Condensed Financial Statements in Part I, Item 1 of this Form 10-Q.
|
|
Three Months Ended March 31, 2018
|
|
|||||||||||||||||||
|
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
|
||||||||||||||
|
(in thousands, except per share data)
|
|
|||||||||||||||||||
January 1, 2018-January 31, 2018
|
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
|
|
$
|
25,266
|
|
|
February 1, 2018-February 28, 2018
|
|
398
|
|
|
|
|
$
|
14.59
|
|
|
|
|
398
|
|
|
|
|
$
|
19,466
|
|
|
March 1, 2018-March 31, 2018
|
|
875
|
|
|
|
|
$
|
16.37
|
|
|
|
|
875
|
|
|
|
|
$
|
5,142
|
|
|
Total
|
|
1,273
|
|
|
|
|
$
|
15.81
|
|
|
|
|
1,273
|
|
|
|
|
$
|
5,142
|
|
|
|
CALLAWAY GOLF COMPANY
|
|
|
|
By:
|
/s/ Jennifer Thomas
|
|
Jennifer Thomas
|
|
Vice President and
Chief Accounting Officer
|
1.
|
Term
. Section 2 of the Agreement is amended to read:
|
DIRECTOR
|
|
COMPANY
|
|
|
Callaway Golf K.K
|
|
|
|
/s/ Alex Boezeman
|
|
By: /s/ Patrick S. Burke
|
Alex Boezeman
|
|
Patrick S. Burke, Director
|
|
|
|
Dated: March 27, 2018
|
|
Dated: March 22, 2018
|
/
S
/ O
LIVER
G. B
REWER
III
|
Oliver G. Brewer III
President and Chief Executive Officer
|
/
S
/ B
RIAN
P. L
YNCH
|
Brian P. Lynch
Senior Vice President, Chief Financial Officer,
General Counsel and Corporate Secretary
|
/
S
/ O
LIVER
G. B
REWER
III
|
Oliver G. Brewer III
President and Chief Executive Officer
|
/
S
/ B
RIAN
P. L
YNCH
|
Brian P. Lynch
Senior Vice President, Chief Financial Officer, General Counsel and Corporate Secretary |