<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
AUGUST 8, 1997
Date of report (Date of earliest event reported)
CALLAWAY GOLF COMPANY
(Exact Name of Registrant as Specified in Charter)
CALIFORNIA 1-10962 95-3797580
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
2285 RUTHERFORD ROAD
CARLSBAD, CA 92008-8815
(Address of Principal Executive Offices)
(760) 931-1771
(Registrant's telephone number, including area code)
<PAGE>
This Amendment No. 1 to Current Report on Form 8-K/A amends the Current Report
on Form 8-K (the "Form 8-K") of Callaway Golf Company, a California corporation
(the "Company," or the "registrant") for the event dated August 8, 1997, as
filed with the Securities and Exchange Commission on August 22, 1997.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The following financial statements of Odyssey Sports, Inc. are filed
herewith as Item 7(a):
Audited financial statements as of September 30, 1996 and for the year
then ended, as follows:
-Report of Independent Accountants;
-Balance Sheet as of September 30, 1996;
-Statement of Income for the year ended September 30, 1996;
-Statement of Changes in Invested Capital of Parent for the year ended
September 30, 1996;
-Statement of Cash Flows for the year ended September 30, 1996; and
-Notes to financial statements.
Unaudited financial statements as of June 30, 1997 and for the nine
months ended June 30, 1997 and 1996, as follows:
-Unaudited Balance Sheet as of June 30, 1997;
-Unaudited Statements of Income for the nine months ended June 30,
1997 and 1996; and
-Unaudited Statements of Cash Flows for the nine months ended June 30,
1997 and 1996.
(b) Pro Forma Financial Information.
The following pro forma financial information is being filed herewith
as Item 7(b):
-Unaudited Pro Forma Consolidated Condensed Balance Sheet as of June
30, 1997;
-Unaudited Pro Forma Consolidated Condensed Statements of Income for
the six months ended June 30, 1997 and the year ended December 31,
1996; and
-Notes to Unaudited Pro Forma Consolidated Condensed financial
statements.
(c) Exhibits.
The following Exhibits are filed herewith as Item 7(c):
*10.1 Asset Purchase Agreement dated July 20, 1997 by and among
Callaway Golf Company, Odyssey Sports, Inc. and U.S.
Industries, Inc.
*10.2 Transitional Assembly Agreement dated as of August 8, 1997 by
and between Callaway Acquisition and Tommy Armour Golf
Company
23.1 Consent of Independent Accountants
*99.1 Press Release, dated August 11, 1997, of Callaway Golf Company
__________
*Previously filed with the registrant's Report on Form 8-K, as filed with the
Securities and Exchange Commission on August 22, 1997
2
<PAGE>
ITEM 7 (a)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholder of Odyssey Sports, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, changes in invested capital of parent and of cash flows present fairly,
in all material respects, the financial position of Odyssey Sports, Inc.
("Odyssey") at September 30, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Odyssey's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
September 24, 1997
3
<PAGE>
ODYSSEY SPORTS, INC.
BALANCE SHEET
(000's)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1997
------------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 7 $ 7
Trade receivables, net 10,546 17,908
Inventories, net 1,975 3,900
Deferred income taxes 8 8
Other current assets 8 132
------- -------
Total current assets 12,544 21,955
------- -------
Property, plant and equipment, net 747 1,293
Deferred income taxes 57 57
Goodwill, net 13,632 13,362
Other assets 91 201
------- -------
$27,071 $36,868
======= =======
LIABILITIES AND INVESTED CAPITAL OF PARENT
Current liabilities:
Trade accounts payable $ 1,976 $ 2,278
Accrued expenses and other liabilities 1,341 1,731
------- -------
Total current liabilities 3,317 4,009
------- -------
Commitments and contingencies
Invested capital of parent 23,754 32,859
------- -------
$27,071 $36,868
======= =======
</TABLE>
See notes to financial statements.
4
<PAGE>
ODYSSEY SPORTS, INC.
STATEMENT OF INCOME
(000's)
<TABLE>
<CAPTION>
Nine Months
Year Ended
Ended June 30,
September 30, -------------------------
1996 1997 1996
------------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Net sales $33,203 $44,046 $19,996
Cost of products sold 14,581 19,568 8,411
------- ------- -------
Gross profit 18,622 24,478 11,585
Selling expenses 9,080 11,277 6,263
General and administrative expenses 4,024 4,095 2,727
Research and development costs 474 476 305
Amortization of goodwill 360 270 270
------- ------- -------
Income before income taxes 4,684 8,360 2,020
Income tax expense 1,996 3,595 869
------- ------- -------
Net income $ 2,688 $ 4,765 $ 1,151
======= ======= =======
</TABLE>
See notes to financial statements.
5
<PAGE>
ODYSSEY SPORTS, INC.
STATEMENT OF CHANGES IN INVESTED CAPITAL OF PARENT
(000's)
<TABLE>
<S> <C>
Balance at September 30, 1995 $17,344
Net Income 2,688
Tax settlements with Parent 1,996
Administrative charges and cash management
transactions with Parent (2,358)
Net trade activity with affiliates 4,084
-------
Balance at September 30, 1996 23,754
Net Income (unaudited) 4,765
Tax settlements with Parent (unaudited) 3,595
Administrative charges and cash management
transactions with Parent (unaudited) (467)
Net trade activity with affiliates (unaudited) 1,212
-------
Balance at June 30, 1997 (unaudited) $32,859
=======
</TABLE>
See notes to financial statements.
6
<PAGE>
ODYSSEY SPORTS, INC.
STATEMENT OF CASH FLOWS
(000's)
<TABLE>
<CAPTION>
Nine Months
Year Ended
Ended June 30,
September 30, -------------------------------
1996 1997 1996
------------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flow used in operating activities:
Net income $ 2,688 $ 4,765 $ 1,151
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 537 467 397
Provision for deferred income taxes 226
Goodwill adjustment 231
Increase (decrease) in cash resulting from changes in:
Trade receivables, net (8,722) (7,362) (5,913)
Inventories, net (636) (1,918) (852)
Other current assets 16 (124) 3
Other assets (56) (110) (24)
Trade accounts payable 1,367 302 1,708
Accrued expenses and other liabilities 1,181 430 37
------- ------- -------
Net cash used in operating activities (3,168) (3,550) (3,493)
------- ------- -------
Cash flow used in investing activities:
Purchases of property, plant and equipment (677) (831) (545)
Proceeds from sale of property, plant and equipment 88
------- ------- -------
Net cash used in investing activities (677) (743) (545)
------- ------- -------
Cash flow from financing activities:
Net activity with affiliates 3,722 4,293 3,927
------- ------- -------
Decrease in cash and cash equivalents (123) (111)
Cash and cash equivalents at beginning of year 130 7 130
------- ------- -------
Cash and cash equivalents at end of year $ 7 $ 7 19
======= ======= =======
</TABLE>
See notes to financial statements.
7
<PAGE>
ODYSSEY SPORTS, INC.
NOTES TO FINANCIAL STATEMENTS
(000's)
NOTE 1- BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
- - ---------------------------------------------------------
Description of Business
- - -----------------------
Odyssey Sports, Inc., a California corporation ("Odyssey"), is an indirect
wholly-owned subsidiary of U.S. Industries, Inc. (the "Parent"). Effective
March 12, 1995, Odyssey was acquired by the Parent pursuant to a merger
agreement between the Parent's wholly-owned subsidiary, Tommy Armour Golf
Company ("Tommy Armour"), and Odyssey. The accompanying financial statements
include certain expenses which were allocated to Odyssey for services provided
by Tommy Armour and the Parent. See Note 3 for a description of the related
services provided to Odyssey.
Effective on August 8, 1997, Odyssey sold substantially all of its tangible
assets to Callaway Acquisition, a wholly owned subsidiary of Callaway Golf
Company (the "Company") as more fully described in Note 12. Odyssey designs,
manufactures and distributes Odyssey(R) brand golf putters and wedges.
Interim Results
- - ---------------
The accompanying balance sheet at June 30, 1997 and the related statements of
income and of cash flows for the nine months ended June 30, 1997 and 1996 are
unaudited. In the opinion of management, these statements have been prepared on
the same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of results of the interim periods. The data disclosed in these notes
to the financial statements at such dates and for such periods are also
unaudited.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- - ----------------------------------------
Revenue Recognition
- - -------------------
Revenue is recognized upon shipment of product to the customer, net of an
allowance for sales returns.
Concentration of Credit Risk
- - ----------------------------
Golf specialty stores and golf course pro shops are Odyssey's principal
customers within the golf equipment industry. Sales to these customers are
generally unsecured.
Inventories
- - -----------
Inventories, net of allowances for excess and obsolete items, are valued at the
lower of cost or market. Cost is determined under the first-in, first-out
(FIFO) method.
Property, Plant and Equipment
- - -----------------------------
Property, plant and equipment are stated at cost, less an allowance for
depreciation. Depreciation is computed on a straight-line basis over estimated
useful lives which range from 3 to 5 years.
Goodwill
- - --------
Goodwill represents the excess of the Odyssey 's allocated acquisition cost over
the fair value of the net assets acquired and is being amortized using the
straight-line method over forty years. Goodwill is assessed for recoverability
based on the fair value methodology. Accumulated amortization at September 30,
1996 was $570. Odyssey recorded amortization expense of $360 for the year ended
September 30, 1996.
8
<PAGE>
Income Taxes
- - ------------
Odyssey's United States earnings results have been included in the consolidated
federal income tax return filed by the Parent. Accordingly, all current federal
income taxes are considered due to the Parent and are reflected in the Invested
Capital of Parent. Pursuant to informal tax allocation agreements, Odyssey
provides for federal income taxes on a stand-alone basis.
Odyssey files separate state tax returns. All current state income taxes are
funded by the Parent, and accordingly, all state income tax balances are
included in the Invested Capital of Parent.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities using the enacted
tax rates and laws. Deferred income tax expense or benefit is based on the
changes in the asset or liability from period to period.
Advertising Costs
- - -----------------
Odyssey advertises primarily through print media. Odyssey's policy is to charge
such costs to expense as incurred. Advertising costs totaled $3,842 for the
year ended September 30, 1996.
Fair Value of Financial Instruments
- - -----------------------------------
The carrying value of short-term financial instruments is a reasonable estimate
of their fair value due to their imminent maturity. Accordingly, fair value
approximates book value at September 30, 1996.
Invested Capital of Parent
- - --------------------------
All intercompany balances with the Parent and affiliates are included within the
Invested Capital of Parent caption in the accompanying financial statements.
Except for certain cash balances controlled at Odyssey's level, cash accounts
have been controlled on a centralized basis by the Parent. Accordingly, cash
receipts and disbursements have been received or made through the Parent,
resulting in net adjustments to Odyssey 's Invested Capital of Parent.
Use of Estimates
- - ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fiscal Year
- - -----------
Odyssey's fiscal year ends on the Saturday nearest to September 30 and reflects
52-week or 53-week periods. The fiscal year has been designated as ending on
September 30 for convenience of reference.
NOTE 3 - RELATED PARTY TRANSACTIONS
- - -----------------------------------
Odyssey has been provided certain services by Tommy Armour and the Parent.
Odyssey has been charged a fee by these affiliates for the services rendered.
Such services include warehouse and distribution services, as well as
management, legal, employee benefit and accounting services. Management
believes that the fees charged have been allocated to Odyssey on a reasonable
basis (principally on the ratio of Odyssey's revenues to Tommy Armour's and
Odyssey's combined revenues). However, these charges are not intended to
approximate costs incurred as if Odyssey were operating on a stand-alone basis.
Such amounts totaled $3,025 for the year ended September 30, 1996.
9
<PAGE>
Beginning January 1, 1996, employees of Odyssey began participating in a defined
contribution plan sponsored by the Parent. Odyssey makes matching contributions
to the plan equal to a certain percentage of the employees' contributions.
Contributions to the plan for the nine months ended September 30, 1996 were $16
and are included in general and administrative expenses in the Statement of
Income.
NOTE 4 - TRADE RECEIVABLES, NET
- - -------------------------------
Trade receivables, net, at September 30, 1996 consist of the following:
<TABLE>
<S> <C>
Trade receivables $11,059
Less allowance for doubtful accounts (408)
Less allowance for sales returns (105)
-------
$10,546
=======
</TABLE>
NOTE 5 - INVENTORIES, NET
- - -------------------------
Inventories, net, at September 30, 1996 and June 30, 1997 consist of the
following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1997
------------- ---------
(unaudited)
<S> <C> <C>
Finished products $ 953 $1,771
In-process products 625 862
Raw materials 443 1,346
------- ------
2,021 3,979
Less obsolescence reserve (46) (79)
------- ------
$ 1,975 $3,900
======= ======
</TABLE>
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
- - --------------------------------------------
Property, plant and equipment, net, at September 30, 1996 and June 30, 1997
consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1997
------------- ---------
(unaudited)
<S> <C> <C>
Leasehold improvements $ 122 $ 396
Machinery and equipment 545 748
Furniture and fixtures 558 790
------- ------
1,225 1,934
Less allowance for depreciation (478) (641)
------- ------
$ 747 $1,293
======= ======
</TABLE>
Depreciation expense for the year ended September 30, 1996 totaled $177.
10
<PAGE>
NOTE 7 - ACCRUED EXPENSES AND OTHER LIABILITIES
- - -----------------------------------------------
Accrued liabilities at September 30, 1996 consist of the following:
<TABLE>
<S> <C>
Accrued compensation $ 556
Accrued sales promotions 109
Accrued miscellaneous expenses (all
individually less than 5% of total liabilities) 676
------
$1,341
======
</TABLE>
NOTE 8 - LEASES
- - ---------------
Odyssey is obligated under various noncancellable operating leases for office
facilities and miscellaneous equipment. Rental expense under these agreements
was $116 for the fiscal year ended September 30, 1996. As of September 30, 1996
future minimum lease payments under noncancellable operating agreements were as
follows:
<TABLE>
<S> <C>
1997 $102
1998 96
1999 8
----
$206
====
</TABLE>
NOTE 9 - INCOME TAXES
- - ---------------------
The provision for income taxes consists of the following:
<TABLE>
<S> <C>
Current:
Federal $1,531
State 239
Deferred: 226
------
$1,996
======
</TABLE>
Odyssey's effective income tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<S> <C> <C>
Income tax at federal statutory rate $1,594 34.0%
State income taxes (net of federal benefit) 248 5.3%
Goodwill amortization 141 3.0%
Other 13 0.3%
------ ----
$1,996 42.6%
====== ====
</TABLE>
The components of the net deferred tax provision were as follows:
<TABLE>
<S> <C>
Provision for doubtful accounts $ (48)
Inventory obsolescence 123
Tax deduction in advance of
financial reporting deduction 213
Depreciation (27)
Other accruals and reserves (35)
-----
$ 226
=====
</TABLE>
11
<PAGE>
Significant components of the deferred tax asset are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Property, plant and equipment $ 57
Inventory 28
Accruals and liabilities 24
Other 6
-----
115
Deferred tax liability:
Accounts receivable (50)
-----
$ 65
=====
</TABLE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
- - ---------------------------------------
Odyssey is involved in various legal proceedings that have arisen in the normal
course of business. It is management's opinion, based on the advice of counsel,
that the ultimate resolution of such litigation will not have a material adverse
effect on Odyssey 's financial position, results of operations, or cash flows.
NOTE 11 - SALES INFORMATION
- - ---------------------------
Odyssey is engaged in domestic and international sales within the following
geographic areas for the fiscal year ended September 30, 1996:
<TABLE>
<S> <C>
United States $25,926
Asia 3,584
Europe 1,558
All others - individually less than 5%
of net sales 2,135
-------
$33,203
=======
</TABLE>
NOTE 12 - SUBSEQUENT EVENT
- - --------------------------
Pursuant to an asset purchase agreement dated July 20, 1997, Odyssey sold
substantially all of its tangible assets to Callaway Acquisition on August 8,
1997. In consideration, Callaway Acquisition paid $130,000 in cash, subject to
adjustment, to the Parent. The adjustment to the purchase price is to be
determined based upon the difference between the Final Net Assets (as defined in
the asset purchase agreement) and the Target Net Assets (as defined in the asset
purchase agreement).
12
<PAGE>
ITEM 7 (b)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
On August 8, 1997, Callaway Acquisition, a wholly-owned subsidiary of Callaway
Golf Company (the "Company") consummated its acquisition of substantially all of
the tangible assets of Odyssey Sports, Inc. ("Odyssey"), subject to certain
adjustments as of the time of closing. Odyssey manufactures and markets the
Odyssey(R) line of putters and wedges with Stronomic(R) face inserts.
The unaudited pro forma financial statements are based on assumptions the
Company believes are reasonable, including those related to cost savings arising
from the elimination of charges from U.S. Industries, Inc. (the "Parent") net of
the estimated replacement costs, and which the Company believes are both
factually supportable and directly attributable to the acquisition. Such
unaudited pro forma financial statements and accompanying notes should be read
in conjunction with the audited Consolidated Financial Statements of the Company
and the related notes thereto which are included in the Company's Annual Report
on Form 10-K for its year ended December 31, 1996, Quarterly Report on Form 10-Q
for the three months ended June 30, 1997, and the Company's Current Report on
Form 8-K dated August 8, 1997 (all filed with the Securities and Exchange
Commission) and the Financial Statements of Odyssey for the nine months ended
June 30, 1997 and the year ended September 30, 1996, and the respective
accompanying notes thereto included in Item 7 (a) of this Report.
The following pro forma financial data are not necessarily indicative of the
Company's results of operations that might have occurred had the transaction
been completed at the beginning of the periods specified, and do not purport to
represent what the Company's consolidated results of operations might be for any
future period.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
The following Unaudited Pro Forma Consolidated Condensed Balance Sheet as of
June 30, 1997 reflects the historical consolidated balance sheets of the Company
and Odyssey adjusted to give effect to the acquisition of substantially all of
the assets of Odyssey, as if the acquisition had occurred at June 30, 1997. The
Unaudited Pro Forma Consolidated Condensed Balance Sheet combines the financial
position of the Company as of June 30, 1997 and the financial position of
Odyssey as of March 31, 1997.
The Company has accounted for the acquisition as a purchase and all required
purchase accounting adjustments to record assets and liabilities at their
estimated fair values have been made based on the actual allocation price and
actual levels of Odyssey assets acquired and liabilities assumed on the
acquisition date. The acquisition price is subject to certain adjustments. Any
adjustment to the purchase price will affect the amount allocated to intangible
assets and will affect the amortization of intangibles in subsequent periods.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
The following Unaudited Pro Forma Consolidated Condensed Statements of Income
for the six months ended June 30, 1997 and the year ended December 31, 1996 are
based on the respective historical consolidated statements of income of the
Company and Odyssey, adjusted to give effect to the acquisition of substantially
all of the assets of Odyssey, as if the acquisition had occurred on January 1,
1996. The Unaudited Pro Forma Consolidated Condensed Statement of Income for
the six months ended June 30, 1997 combines the results of operations of the
Company for the six months ended June 30, 1997 with the results of operations
of Odyssey for the six months ended March 31, 1997. The Unaudited Consolidated
Condensed Statement of Income for the year ended December 31, 1996 combines the
results of operations of the Company for the year ended December 31, 1996 with
the results of operations of Odyssey for the year ended September 30, 1996.
13
<PAGE>
The Unaudited Pro Forma Consolidated Condensed Statements of Income reflect
certain cost savings that management has identified related to elimination of
duplicative costs for functional areas and facilities. However, the Unaudited
Pro Forma Consolidated Condensed Statements of Income do not reflect certain
additional cost savings and synergies that management has identified related to
areas such as vendor consolidation and research and development costs.
14
<PAGE>
CALLAWAY GOLF COMPANY
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
June 30, 1997
(000's)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------- -------------------------------
(unaudited) (unaudited)
Callaway
Golf Odyssey
Company Sports, Inc.
June 30, 1997 March 31, 1997 Adjustments Combined
-------------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
- - ------
Current assets:
Cash and cash equivalents $ 150,849 $ 8 $(129,256)(A) $ 21,593
(8)(B)
Accounts receivable, net 127,375 14,222 141,597
Inventories, net 69,353 3,273 72,626
Deferred taxes 25,328 8 25,336
Other current assets 13,751 37 13,788
--------- ------- --------- ---------
Total current assets 386,656 17,548 (129,264) 274,940
Property, plant and equipment, net 114,567 1,075 115,642
Goodwill and other intangibles 13,630 6,654 (A) 118,352
108,100 (A)
(13,452)(B)
(178)(B)
3,598 (C)
Other assets 21,559 57 (3,598)(C) 18,018
--------- ------- --------- ---------
$ 522,782 $32,310 $ (28,140) $ 526,952
========= ======= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ----------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 33,167 $ 3,386 $ 36,553
Accrued employee compensation and 25,363 496 25,859
benefits
Accrued warranty expense 27,892 27,892
Income taxes payable 12,651 288 12,939
--------- ------- ---------
Total current liabilities 99,073 4,170 103,243
Long-term liabilities 5,821 5,821
Commitments and contingencies
Shareholders' equity:
Invested capital of parent 28,140 $ (28,140)(A)
Preferred Stock
Common Stock 732 732
Paid-in-capital 342,910 342,910
Unearned compensation (4,148) (4,148)
Retained earnings 266,544 266,544
Less: Grantor Stock Trust (188,150) (188,150)
--------- ------- --------- ---------
Total shareholders' equity 417,888 28,140 (28,140) 417,888
--------- ------- --------- ---------
$ 522,782 $32,310 $ (28,140) $ 526,952
========= ======= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma
consolidated condensed financial statements.
15
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
(000's)
(A) The acquisition was financed with $130,000 in cash and was paid to seller
at closing on August 8, 1997. The following table sets forth the
calculation of the Company's acquisition costs and its preliminary
allocation to Odyssey's assets and liabilities assuming the transaction
occurred on June 30, 1997 using the estimated purchase accounting
adjustments, which are subject to post-closing adjustments and to further
revision once appraisals and other studies of the fair value of Odyssey's
assets and liabilities are completed. Final purchase accounting
adjustments may differ from the amounts shown below. Under the terms of
the asset purchase agreement the estimated purchase price of Odyssey as of
August 8, 1997 was $129,256.
<TABLE>
<S> <C>
Calculation of Acquisition Cost:
Purchase of Odyssey $130,000
Purchase price adjustment (1,106)
Related acquisition expenses 362
--------
$129,256
--------
Elimination of book value of net
assets acquired:
Assets excluded from purchase $ 13,638
Invested capital of parent (28,140)
--------
Net book value eliminated (14,502)
--------
Excess cost over book value $114,754
========
Allocation of purchase price:
Accounts receivable $ 14,222
Inventories 3,273
Deferred tax asset, current 8
Other current assets 37
Property, plant and equipment 1,075
Deferred tax asset, noncurrent 57
Trade accounts payable (3,386)
Accrued liabilities (784)
Other intangibles 108,100
Goodwill 6,654
--------
$129,256
========
</TABLE>
(B) Adjustment of Odyssey's historical balance sheet to exclude certain assets
not purchased and certain liabilities not assumed by the Company under the
terms of the asset purchase agreement:
<TABLE>
<S> <C>
Cash $ 8
Historical goodwill 13,452
Other intangibles 178
-------
$13,638
=======
</TABLE>
(C) Reclassification of goodwill included in the assets of Callaway Golf
Company at June 30, 1997 from other assets to goodwill and other
intangibles.
16
<PAGE>
CALLAWAY GOLF COMPANY
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(000's except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------- -------------------------------
(unaudited) (unaudited)
Callaway Golf Odyssey
Company Sports, Inc.
Six Months Ended Six Months Ended
June 30, March 31,
1997 1997 Adjustments Combined
---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $422,105 $23,250 $445,355
Cost of goods sold 200,360 10,408 210,768
-------- ------- --------
Gross profit 221,745 12,842 234,587
Operating Expenses:
Selling 62,595 5,868 68,463
General and administrative 32,328 2,614 $ (97)(A) 36,559
1,785 (B)
(71)(D)
Research and development 14,042 299 14,341
-------- ------- ------- --------
Income from operations 112,780 4,061 (1,617) 115,224
Other income (expense), net 2,414 (2,702)(C) (288)
-------- ------- ------- --------
Income before income taxes 115,194 4,061 (4,319) 114,936
Provision for income taxes 43,906 1,746 (1,976)(E) 43,676
-------- ------- ------- --------
Net income $ 71,288 $ 2,315 $(2,343) $ 71,260
======== ======= ======= ========
Earnings per common share $1.00 $1.00
======== ========
Common equivalent shares 71,244 (F) 71,272
======== ========
</TABLE>
See accompanying notes to unaudited pro forma
consolidated condensed financial statements.
17
<PAGE>
CALLAWAY GOLF COMPANY
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31,1996
(000's except per share data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- ----------------------------
(unaudited)
Callaway Golf Odyssey
Company Sports, Inc.
Year Ended Year Ended
December 31, September 30,
1996 1996 Adjustments Combined
---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $678,512 $33,203 $711,715
Cost of goods sold 317,353 14,581 331,934
-------- ------- --------
Gross profit 361,159 18,622 379,781
Operating Expenses:
Selling 80,701 9,080 89,781
General and administrative 74,476 4,384 $ (194)(A) 81,561
3,570 (B)
(675)(D)
Research and development 16,154 474 16,628
-------- ------- ------- --------
Income from operations 189,828 4,684 (2,701) 191,811
Other income, net 5,767 (5,021)(C) 746
-------- ------- ------- --------
Income before income taxes 195,595 4,684 (7,722) 192,557
Provision for income taxes 73,258 1,996 (2,082)(E) 73,172
-------- ------- ------- --------
Net income $122,337 $ 2,688 $(5,640) $119,385
======== ======= ======= --------
Earnings per common share $1.73 $1.69
======== ========
Common equivalent shares 70,661 (F) 70,681
======== ========
</TABLE>
See accompanying notes to unaudited pro forma
consolidated condensed financial statements.
18
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(000'S)
(A) Reflects decreased amortization of goodwill using an estimated useful life
of 40 years, net of historical amortization expense.
(B) Reflects amortization of a portion of excess purchase price (excluding
goodwill) to trade name, patents, trademarks, trade dress and covenant not
to compete acquired in connection with the acquisition of substantially
all of the assets of Odyssey on the straight-line basis over lives ranging
from 3 to 40 years.
(C) Loss of interest income on interest-bearing cash and cash equivalent
balances of $2,702 and $5,021 for the six months ended June 30, 1997 and
the year ended December 31, 1996, respectively. The acquisition was
financed with $130,000 in existing cash and cash equivalents and was paid
to seller at closing on August 8, 1997.
(D) Elimination of charges for services and overhead allocations from Odyssey's
former parent, net of expected cost to replace, calculated as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1997 December 31, 1996
----------------- ------------------
<S> <C> <C>
Elimination of charges for services
and overhead allocations $(639) $(1,904)
Estimated replacement cost 568 1,229
----- -------
$ (71) $ (675)
===== =======
</TABLE>
(E) Adjustment of the consolidated provision for income taxes based on the
Company's pro forma effective tax rate to reflect the acquisition of
certain assets and liabilities of Odyssey.
(F) Pro forma common equivalent shares are based on weighted average shares
outstanding during each period presented, and give effect to the post-
closing issuance of stock options of the Company to new employees of
Callaway Acquisition as if such options had been issued on January 1, 1996.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October 21, 1997 CALLAWAY GOLF COMPANY
By: /s/ DONALD H. DYE
-----------------------
Donald H. Dye
President and CEO
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- - ----------- ----------- -------------
<C> <S> <C>
23.1 Consent of Independent Accountants 22
</TABLE>
21
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-77024) and
in the Registration Statements on Form S-8 (No. 33-85692, No. 33-50564, No.
33-56756, No. 33-67160, No. 33-73680, No. 33-98750, No. 33-92302, No. 333-242,
No. 333-5719, No. 333-5721, No. 333-24207, No. 333-27089, and No. 333-27091) of
Callaway Golf Company of our report dated September 24, 1997 appearing on page 3
of this Current Report on Form 8-K.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
October 21, 1997
22
