Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10962
CALLAWAY GOLF COMPANY
(Exact name of registrant as specified in its charter)
California 95-3797580
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2285 Rutherford Road
Carlsbad, CA 92008-8815
(760) 931-1771
(Address, including zip code, and telephone number, including area code of
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock New York Stock Exchange
Preferred Share Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
As of February 24, 1998, the aggregate market value of the Registrant's
Common Stock held by nonaffiliates of the Registrant was $2,403,960,000 based on
the closing sales price of the Registrant's Common Stock as reported in the
consolidated transactions reporting system.
As of February 24, 1998, the number of shares of the Registrant's Common
Stock outstanding was 74,680,325, and there were no shares of the Registrant's
Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I, II and IV incorporate certain information by reference from
Registrant's Annual Report to shareholders for the fiscal year ended December
31, 1997.
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement for the annual meeting of shareholders
to be held on April 23, 1998 which proxy statement was filed on March 16, 1998.
Note: Statements used in this Annual Report on Form 10-K and the information
incorporated herein by reference that relate to future plans, events, financial
results or performance are forward-looking statements as defined under the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those anticipated. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to republish revised forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events. Readers are also urged to
carefully review and consider the various disclosures made by the Company which
describe certain factors which affect the Company's business, including the
disclosures set forth in Item 1 of this Report and the discussion incorporated
by reference in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under the caption "Certain
Factors Affecting Callaway Golf," as well as the Company's periodic reports on
Forms 10-Q and 8-K filed with the Securities and Exchange Commission.
PART I
Item 1. Business.
Callaway Golf Company (the "Company" or "Callaway Golf") is a California
corporation formed in 1982 and has the following directly wholly-owned operating
subsidiaries: Callaway Golf Sales Company, Callaway Golf Ball Company, Odyssey
Golf, Inc., CGV, Inc., Callaway Golf Europe Ltd. (formerly Callaway Golf (UK)
Limited), ERC International Company, Callaway Golf Korea, Ltd. and Callaway Golf
(Germany) GmbH. The Company designs, develops, manufactures and markets high
quality, innovative golf clubs. The Company's golf clubs are sold at premium
prices to both average and skilled golfers on the basis of performance, ease of
use and appearance. Callaway Golf's primary products, most of which incorporate
the Company's S2H2(R) design concept, currently include Biggest Big Bertha(TM)
Titanium Drivers, Great Big Bertha(R) Titanium Drivers and Fairway Woods, Big
Bertha(R) Metal Woods with the War Bird(R) soleplate, Great Big Bertha(R)
Tungsten.Titanium(TM) Irons, Big Bertha(R) X-12 Irons, Big Bertha(R) Tour Series
Wedges and various putters, including the Bobby Jones(R) Series Putters.
In August 1997, the Company consummated its acquisition of substantially
all of the assets and certain liabilities of Odyssey Sports, Inc., by one of its
wholly-owned subsidiaries, Odyssey Golf, 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) and Lyconite(TM) face
inserts.
Products
The following table sets forth the contribution to net sales attributable
to the product groups for the periods indicated (dollars in thousands).
Year Ended December 31,
---------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- --------------------
Metal Woods $544,258 64% $479,127 71% $382,740 69%
Irons 233,977 28% 168,576 25% 140,620 25%
Putters, accessories
and other* 64,692 8% 30,809 4% 29,927 6%
---------------------------------------------------------------------------
Net Sales $842,927 100% $678,512 100% $553,287 100%
===========================================================================
* 1997 net sales include $20.5 million of Odyssey(R) putters and wedges.
The Company believes that the growth rate, if any, in the world-wide golf
equipment market has been modest for the past several years, and this trend is
likely to continue. In addition, recent economic turmoil in Southeast Asia and
Korea has caused a significant contraction in the retail golf markets in these
countries and had an adverse effect on the Company's sales and results of
operations for the fourth quarter of 1997. The Company expects this situation to
continue until economic stability returns to these areas. Potential economic
disruption from this turmoil in other areas, such as Japan and elsewhere in
Asia, also could adversely impact the Company's future sales and results of
operations. Additionally, although demand for the Company's products was
generally strong during 1997, no
2
assurances can be given that the demand for the Company's existing products or
the introduction of new products will continue to permit the Company to
experience its historical growth rates in sales.
The Company experienced an increase in its cost of goods sold during the
third and fourth quarters of 1997 compared to historical levels, primarily due
to a general increase in sales of irons, which have lower margins than metal
woods, and an increase in sales to Japan, an area which has the lowest margins
of all the areas in which the Company sells. In addition, the current operations
of Odyssey have lower margins than the Company has experienced historically. If
sales of irons or Odyssey(R) putters as a percentage of the Company's total
sales remain at these levels or continue to rise and margins do not improve, the
recent increase in cost of goods sold over historical levels will continue.
Metal Woods
Biggest Big Bertha(TM) Titanium Driver
In January 1997, the Company introduced Biggest Big Bertha(TM) Titanium
Drivers. Biggest Big Bertha(TM) Drivers have titanium clubheads which are
approximately 15% larger than Great Big Bertha(R) Driver clubheads described
below, and ultralight graphite shafts which are longer than Great Big Bertha(R)
Driver shafts. Although larger and longer, Biggest Big Bertha(TM) Drivers are
lighter in overall weight than Great Big Bertha(R) Drivers. Biggest Big
Bertha(TM) Drivers incorporate the S2H2(R) design concept, the War Bird(R)
soleplate (which features a deep dish on either side of the central facet
running rearward from the clubface) and an advanced internal weighting system
which increases the degree of perimeter weighting of the titanium clubhead. The
Company offers Biggest Big Bertha(TM) Drivers in lofts ranging from 6 to 12
degrees. It is expected that this product line will be offered as a driver only.
Deliveries of significant quantities of this new product commenced in January
1997.
Great Big Bertha(R) Titanium Metal Woods
The Company offers Great Big Bertha(R) Titanium Drivers, which have a
titanium clubhead and a lightweight graphite shaft, in lofts ranging from 6.5 to
12 degrees. The head is 25% larger and the overall weight is 10% lighter than
the Big Bertha(R) War Bird(R) Driver. The drivers incorporate the S2H2(R)
concept as well as the War Bird(R) soleplate. Deliveries of significant
quantities of this product commenced in 1995. In 1996, the Company introduced
and began delivery of Great Big Bertha(R) Fairway Woods (numbers 2, 3, strong 3,
4, 5, 7 and 9). These fairway woods have titanium clubheads and also incorporate
the S2H2(R) concept, the War Bird(R) soleplate and lightweight graphite shafts.
Big Bertha(R) Metal Woods with the War Bird(R) Soleplate
The Company offers Big Bertha(R) War Bird(R) Drivers in lofts ranging from
8 to 12 degrees with graphite, steel or titanium shafts. The Company also offers
Big Bertha(R) War Bird(R) Fairway Woods (numbers 2, 3, strong 3, 4, strong 4, 5,
HeavenWood(R), Divine Nine(R) and Ely Would(R)). The Company introduced the
HeavenWood(R), Divine Nine(R) and Ely Would(R) metal woods in 1992, 1993 and
1995, respectively. All of these clubs incorporate the War Bird(R) soleplate. In
1996, the Company introduced RCH Series 96(TM) graphite shafts for its Big
Bertha(R) War Bird(R) Metal Woods. These shafts are lighter and more responsive.
Irons
Big Bertha(R) X-12 Irons
In January 1998, the Company introduced and began delivery of significant
quantities of Big Bertha(R) X-12 Irons. Big Bertha(R) X-12 Irons incorporate a
low center of gravity which helps get the ball airborne more easily with the
proper trajectory and spin. The varied 360-degree undercut channel creates a
thinner profile and less drag and the narrower sole keeps the center of gravity
low and reduces turf drag. The unique multi-layer design in the cavity allows
for increased forgiveness on off-center hits. These new irons are offered in 1
through 9, and pitching, approach, sand, and lob wedges, with either graphite or
steel shafts.
3
Great Big Bertha(R) Tungsten.Titanium(TM) Irons
In January 1997, the Company introduced Great Big Bertha(R)
Tungsten.Titanium(TM) Irons. Great Big Bertha(R) Tungsten.Titanium(TM) Irons
incorporate the same core design features as Big Bertha(R) Irons, but have a
slightly larger titanium clubhead with a specially designed tungsten inset to
concentrate weight low and deep in the clubhead. These design features are
intended to give these irons a lower and deeper sweet-spot compared to other
titanium irons. The Company offers Great Big Bertha(R) Tungsten.Titanium(TM)
Irons 1 through 9, and pitching, approach, sand and lob wedges, with either
graphite or steel shafts. Deliveries of significant quantities of this product
commenced in April 1997.
Big Bertha(R) Irons, Big Bertha Gold(TM) Irons, Big Bertha(R) Tour Series
Wedges and Big Bertha Gold(TM) Tour Series Wedges
During 1997, the Company offered Big Bertha(R) Irons 1 through 9, and
pitching, approach, sand, and lob wedges, with either graphite, steel or
titanium shafts. Also during 1997, the Company offered Big Bertha Gold(TM)
Irons, cast of aluminum bronze and including all of the design features of Big
Bertha(R) Irons. The Company no longer offers as a current product its Big
Bertha(R) Irons and Big Bertha Gold(TM) Irons.
In 1996, the Company introduced and began delivery of Big Bertha(R) Tour
Series Wedges (pitching, approach, sand and lob wedges) with several new
features geared toward enhancing playability for middle-to low-handicap amateurs
as well as tour professionals. In January 1997, the Company also introduced Big
Bertha Gold(TM) Tour Series Wedges.
Putters
The Company has two lines of putters. As mentioned previously, the Company
acquired substantially all of the assets and certain liabilities of Odyssey
Sports, Inc. in August 1997 through its wholly-owned subsidiary, Odyssey.
Odyssey produces putters incorporating a soft, sensitive black trapezoidal
Stronomic(R) insert designed to provide better feel and forgiveness. Odyssey
produces Rossie(TM) mallets and blade style putters in both stainless steel and
bronze. The Company also has a Callaway Golf(R) line of steel and graphite
shafted putters, some of which incorporate the S2H2(R) concept, including the
Tuttle(R) and the Tuttle(R) II putters, the Big Bertha(R) War Bird(R) putter,
and the steel shafted Big Bertha(R) Blade putter. In 1996, the Company
introduced and commenced deliveries of the new Bobby Jones(R) line of putters,
consisting of three styles of precision-machined putters with a double-radius
bend, offset shaft and in 1997, additional styles of the Bobby Jones(R) line of
putters were introduced. The Bobby Jones(R) line is available in stainless steel
and aluminum bronze.
Accessories
In addition to its golf clubs, Callaway Golf offers golf-related equipment
and supplies manufactured by other companies bearing the Callaway(R) logo,
including golf bags, travel bags, head covers, hats, umbrellas and other
accessories.
Licensing
Through a licensing arrangement with Jonesheirs, Inc., Callaway Golf
obtained the exclusive, worldwide rights to the use of the Bobby Jones(R) name
for golf clubs and golf-related accessories through 2010. The Company receives a
royalty from the Hickey-Freeman Company on sales of Bobby Jones(R) Sportswear
and certain other products.
Callaway Golf also has an exclusive licensing agreement with Nordstrom,
Inc., under which Nordstrom, Inc. designs, produces and sells apparel at its own
expense under the "Callaway Golf Apparel by Nordstrom" label. The licensing
agreement was recently extended through 2004. The line includes men's and
women's golf apparel, golf footwear and certain other products and is sold at
Nordstrom stores throughout the United States.
In 1997, Callaway Golf and Bausch & Lomb Incorporated signed a multi-year
agreement to jointly develop and globally market an exclusive line of premium
sunglasses specifically for golf enthusiasts. The sunglasses, to be
4
co-branded with the Ray-Ban(R) and Callaway Golf(R) names, will be marketed in
the second half of 1998 or early 1999 at golf pro shops and other retailers of
premium golf equipment, better sporting goods and better department stores,
sunglass specialty shops and optical channels.
Product Design and Development
Product design at Callaway Golf is a result of the integrated efforts of
its product development, manufacturing and sales departments, all of which work
together to generate new ideas for golf equipment. The Company has not limited
itself in its research efforts by trying to duplicate designs that are
traditional or conventional and believes it has created an environment in which
new ideas are valued and explored. The Company's research and development
expenses were $30.3 million, $16.2 million and $8.6 million during 1997, 1996,
and 1995, respectively. The Company intends to continue to invest substantial
amounts in its research and development activities in 1998 and beyond. In
addition to development of new golf equipment, these investments are expected to
include, among others, significant expenditures in support of Callaway Golf Ball
Company's efforts to develop and market a new golf ball product, as well as the
continued enhancement of, and the development of additional applications for,
the Company's Sir Isaac Performance System(TM), a high-tech evaluation system
which permits golfers to compare the performance of different golf clubs and
balls.
In January 1997, the Company opened Callaway Golf Performance Centers which
feature the Sir Isaac Performance System(TM) at Walt Disney World in Orlando,
Florida, and at the Pebble Beach Golf Resort in Carmel, California. In
connection with these arrangements, the Company also received certain exclusive
promotional rights at these popular resorts. A third Callaway Golf Performance
Center opened in October 1997 in Las Vegas, Nevada.
Callaway Golf has the ability to build and modify clubhead designs by using
computer aided design/computer aided manufacturing ("CAD/CAM") software and
complete numerical control ("CNC") milling equipment. CAD/CAM software enables
designers to develop computer models of new club designs. CNC milling equipment
converts the digital output from CAD/CAM computer models into physical metal
models produced by an electronically-controlled milling machine. Callaway Golf
uses this software and equipment to facilitate the rapid design and production
of physical models of clubheads, as well as casting tools for producing
prototype clubheads for testing. In 1996, the Company purchased two induction
furnaces (for casting ferrous and non-ferrous alloys) and one cold-walled
furnace (for casting titanium, nickel and cobalt alloys). The Company has
installed these furnaces in a state-of-the-art research facility at the
Company's headquarters in Carlsbad, California, which enables it to cast its own
prototype clubheads on-site, as well as study new production processes and
techniques. This new development facility became operational in June 1997 for
stainless steel and August 1997 for Titanium. The Company believes that this on-
site casting capability will further facilitate the rapid design and development
of prototype clubheads.
The Company believes that the introduction of new, innovative golf
equipment will be important to its future success. As a result, the Company
faces certain risks associated with such a strategy. For example, new models and
basic design changes in golf equipment are frequently met with consumer
rejection. In addition, prior successful designs may be cannibalized or rendered
obsolete within a relatively short period of time as new products are introduced
into the marketplace. New designs should generally satisfy the standards
established by the United States Golf Association ("USGA") and the Royal and
Ancient Golf Club of St. Andrews ("R&A") because these standards are generally
followed by golfers within their respective jurisdictions. There is no assurance
that new designs will receive USGA and/or R&A approval, or that existing USGA
and/or R&A standards will not be altered in ways that adversely affect the sales
of the Company's products. Moreover, the Company's new products have tended to
incorporate significant innovations in design and manufacture, which have
resulted in increasingly higher prices for the Company's products relative to
products already in the marketplace. There can be no assurance that a
significant percentage of the public will always be willing to pay such prices
for golf equipment. Thus, although the Company has achieved certain successes in
the introduction of its golf clubs in the past, no assurances can be given that
the Company will be able to continue to design and manufacture golf clubs that
achieve market acceptance in the future.
The rapid introduction of new products by the Company can result in close-
outs of existing inventories, both at the Company and at retailers. So far, the
Company has managed such close-outs so as to avoid any material negative impact
on the Company's operations. There can be no assurance that the Company will
always be able to do so.
As the Company introduces new products, it plans its manufacturing capacity
based upon the forecasted demand for such new products. Actual demand for such
new products may exceed forecasted demand. The Company's
5
unique product designs often require sophisticated manufacturing techniques,
which can limit the Company's ability to quickly expand its manufacturing
capacity to meet the full demand for new products. If the Company is unable to
produce sufficient quantities of new products in time to fulfill actual demand,
especially during the Company's traditionally busy second and third quarters, it
could limit the Company's sales and adversely affect its financial performance.
In 1996, the Company formed Callaway Golf Ball Company, a wholly-owned
subsidiary of the Company, for the purpose of designing, manufacturing and
selling golf balls. The Company has previously licensed the manufacture and
distribution of a golf ball product in Japan and Korea. The Company also
distributed a golf ball under the trademark "Bobby Jones." These golf ball
ventures were not commercially successful.
The Company has determined that Callaway Golf Ball Company will enter the
golf ball business by developing a new product in a new plant to be constructed
just for this purpose. The successful implementation of the Company's strategy
could be adversely affected by various risks, including, among others, delays in
product development, construction delays and unanticipated costs. There can be
no assurance if and when a successful golf ball product will be developed or
that the Company's investments will ultimately be realized.
The Company's golf ball business is in the early stages of development. It
is expected, however, that it will have a negative impact on the Company's
future cash flows and results of operations for several years. The Company
believes that many of the same factors which affect the golf equipment industry,
including growth rate in the golf equipment industry, intellectual property
rights of others, seasonality and new product introductions, also apply to the
golf ball business. In addition, the golf ball business is highly competitive
with a number of well-established and well-financed competitors. These
competitors have established market share in the golf ball business which will
need to be penetrated in order for the Company's golf ball business to be
successful.
Sales and Marketing
Sales for Distribution in the United States
Approximately 65%, 68% and 66% of the Company's net sales were derived from
sales for distribution within the United States in 1997, 1996 and 1995,
respectively. The Company targets those golf retailers (both on-course and off-
course) who sell "pro-line" clubs (professional quality golf clubs) and provide
a level of customer service appropriate for the sale of premium golf clubs. No
one customer that distributes golf clubs in the United States accounted for more
than 5% of the Company's revenues in 1997, 1996, and 1995. The Company
distributes its products in Hawaii through an exclusive distributor.
The Company, through its subsidiaries Callaway Golf Sales Company and
Odyssey, currently employ full-time regional field representatives, in-house
telephone salespersons and customer service representatives in connection with
golf club and accessory sales. Each geographic region is covered by both a field
representative and a telephone salesperson who work together to initiate and
maintain relationships with customers through frequent telephone calls and in-
person visits. The Company believes that this tandem approach of utilizing field
representatives and telephone salespersons provides the Company a competitive
advantage over other golf club manufacturers that distribute their golf clubs
solely through independent sales representatives rather than employees.
Notwithstanding the foregoing, Callaway Golf recognizes that other companies
have marketing programs which may be equally or more effective than its own
strategy.
Some quantities of the Company's products find their way to unapproved
outlets or distribution channels. This "gray market" in the Company's products
can undermine authorized retailers and distributors who promote and support the
Company's products, and can injure the Company's image in the minds of its
customers and consumers. On the other hand, stopping such commerce could result
in a potential decrease in sales to those customers who are selling Callaway
Golf products to unauthorized distributors and/or an increase in sales returns
over historical levels. While the Company has taken some lawful steps to limit
commerce in its products in the "gray market" in both domestic and international
markets, it has not stopped such commerce. The Company's efforts to address gray
market issues could have an adverse impact on the Company's sales and financial
performance.
6
Sales for Distribution Outside of the United States
Approximately 35%, 32% and 34% of the Company's net sales were derived from
sales for distribution outside of the United States in 1997, 1996 and 1995,
respectively. The majority of the Company's international sales are made through
distributors specializing in the sale and promotion of golf clubs in specific
countries or regions around the world. The Company currently has distribution
arrangements covering sales of the Company's products in over 40 foreign
countries, including Japan, Canada, Singapore, Spain, Italy, France, Hong Kong,
Australia, Argentina and South Africa. Prices of golf clubs for sales outside of
the United States receive an export pricing discount to compensate international
distributors for selling, advertising and distribution costs. A change in the
Company's relationship with significant distributors could negatively impact the
volume of the Company's international sales.
The Company directly markets its products in the United Kingdom, Belgium,
Finland, Denmark and Sweden through its wholly-owned British subsidiary,
Callaway Golf Europe Ltd. (formerly Callaway Golf (UK) Limited). In 1996, the
Company acquired a majority interest in its distributor in Germany, Golf Trading
GmbH, which sells and promotes the Company's products in Germany, Austria, the
Netherlands and Switzerland. In February 1998, the Company purchased the
distribution rights of its Korean distributor and began directly marketing its
products in that country through its subsidiary, Callaway Golf Korea, Ltd.
The Company, through a distribution agreement, appointed Sumitomo Rubber
Industries, Ltd. ("Sumitomo") as the sole distributor of the Company's golf
clubs in Japan. The current distribution agreement began in February 1993 and
runs through December 31, 1999. The Company does not intend to extend this
agreement. Sales to Sumitomo represented approximately $83.0 million (10%),
$58.2 million (9%), and $61.0 million (11%) of the Company's net sales in 1997,
1996 and 1995, respectively. See Note 12 of Notes to Consolidated Financial
Statements in the Company's Annual Report to shareholders for the year ended
December 31, 1997 ("1997 Annual Report to Shareholders").
The Company has established ERC International Company ("ERC"), a wholly-
owned Japanese corporation, for the purpose of distributing Odyssey(R) products
immediately, golf balls when ready and Callaway Golf clubs beginning January 1,
2000. There will be significant costs and capital expenditures invested in ERC
before there will be sales sufficient to support such costs. Furthermore, there
are significant risks associated with the Company's intention to effectuate
distribution in Japan through ERC, and it is possible that doing so will have a
material adverse effect on the Company's operations and financial performance.
The Company's management believes that controlling the distribution of its
products throughout the world will be an element in the future growth and
success of the Company. The Company is actively pursuing a reorganization of its
international operations, including the acquisition of distribution rights in
certain key countries in Europe and Asia. These efforts have and will result in
additional investments in inventory, accounts receivable, corporate
infrastructure and facilities. The integration of foreign distributors into the
Company's international sales operations will require the dedication of
management resources which may temporarily detract from attention to the day-to-
day business of the Company, and also increase the Company's exposure to
fluctuations in exchange rates for various foreign currencies. International
reorganization also could result in disruptions in the distribution of the
Company's products in some areas. There can be no assurance that the acquisition
of some or all of the Company's foreign distributors will be successful, and it
is possible that an attempt to do so will adversely affect the Company's
business.
As noted above, the Company continues to experience unauthorized
distribution of its products in international markets. For a discussion of the
Company's efforts in this area, see "Sales for Distribution in the United
States" set forth above.
Advertising and Promotion
Within the United States, the Company has focused its advertising efforts
mainly on a combination of television commercials and printed advertisements in
national magazines, such as Golf Digest, Golf Magazine, Golf Week, Golf World
and Sports Illustrated's Golf Edition, and in trade publications, such as Golf
Pro and Golf Shop Operations. Advertising of the Company's golf clubs outside of
the United States is typically handled by distributors and resellers of the
products in a particular country.
7
The Company also establishes relationships with professional golfers in
order to promote the Callaway Golf brand among both professional and amateur
golfers. The Company has entered into endorsement agreements with members of the
Professional Golf Association's Tour ("PGA"), the Senior Professional Golf
Association's Tour ("SPGA"), the Ladies Professional Golf Association's Tour
("LPGA"), the European Professional Golf Association's Tour, the Japanese
Professional Golf Association's Tour ("JPGA") and the Nike Tour. While most
professional golfers fulfill their contractual obligations, some have been known
to stop using a sponsor's products despite contractual commitments. If one or
more of Callaway Golf's professional endorsers were to stop using Callaway
Golf's products contrary to their endorsement agreements, the Company's business
could be adversely affected in a material way by the negative publicity.
Many professional golfers throughout the world use the Company's golf clubs
even though they are not contractually bound to do so. The Company has created
cash "pools" that reward such usage. For the last several years, the Company has
experienced an exceptional level of driver penetration on the world's five major
professional tours, and the Company has heavily advertised that fact. There is
no assurance that the Company will be able to sustain this level of professional
usage. Many other companies are aggressively seeking the patronage of these
professionals, and are offering many inducements, including specially designed
products and significant cash rewards. While it is not clear whether
professional endorsements materially contribute to retail sales, it is possible
that a decline in the level of professional usage could have a material adverse
effect on the Company's business.
During 1997, Callaway Golf continued its Big Bertha(R) Players' Pools
("Pools") for the PGA, SPGA, LPGA and Nike Tours. Those professional players
participating in the Pools received cash for using Callaway Golf products in
professional tournaments. The Company has established the 1998 Big Bertha(R)
Players' Pools similar to the 1997 Pools, in which professional players
participating in the Pools will receive cash for using certain Callaway Golf
products in professional tournaments. The Company believes that its professional
endorsements and its Pools contributed to its success on the professional tours
in 1997. There is no guarantee, however, that the Company will be able to
sustain this level of success.
To support the promotion of its products at the retail level, the Company
offers various promotional programs to its customers. Golf clubs may be
purchased at a discount for personal use by golf shop professionals,
demonstration, test, loan and rental use.
The Company spent approximately $62.4 million, $45.0 million and $37.7
million on advertising, promotional and endorsement related expenditures,
including compensation to professional golfers, in 1997, 1996 and 1995,
respectively.
Manufacturing
The manufacturing of the Company's golf clubs involves a number of
specialized processes required by the unique design of the products. The
Company's metal woods and irons are produced by the Company's manufacturing
personnel at its Carlsbad, California facilities using clubheads, shafts and
grips supplied by independent vendors.
The Company works with a few select casting houses to produce its
clubheads. The clubheads used in the production of Big Bertha(R) Metal Woods
with the War Bird(R) soleplate are manufactured to Callaway Golf's
specifications by Cast Alloys, Inc. and Coastcast Corporation ("Coastcast").
Sturm, Ruger and Company ("Sturm, Ruger"), Coastcast and Cast Alloys, Inc. cast
Great Big Bertha(R) Titanium Metal Wood clubheads. Biggest Big Bertha(TM)
Titanium Driver clubheads are provided by Cast Alloys Inc. and Sturm, Ruger. Big
Bertha(R) Iron clubheads are provided by Hitchiner Manufacturing Co. and
Coastcast. Great Big Bertha(R) Tungsten.Titanium(TM) Irons are provided by
Coastcast and clubheads for the new Big Bertha(R) X-12 Irons are provided by
Hitchiner Manufacturing Co. and Coastcast. The Company works closely with its
casting houses, which enables the Company to monitor the quality and reliability
of clubhead production. All of these casting houses are currently manufacturing,
or are entitled to manufacture, clubheads for competitors of the Company. The
Company also works closely with Aldila, True Temper, HST, Graphite Design, Inc.,
Fujikura, Suntech-Sunwoo Co, Ltd. and Unifiber, its principal suppliers of
shafts, to develop specialized shafts suited to the S2H2(R) design and the other
unique features of the Company's products.
The Company is dependent on a limited number of suppliers for its clubheads
and shafts. In addition, some of the Company's products require specifically
developed manufacturing techniques and processes which make it difficult to
identify and utilize alternative suppliers quickly. Consequently, if a
significant delay or disruption in the
8
supply of these component parts occurs, it may have a material adverse effect on
the Company's business. In the event of a significant delay or disruption, the
Company believes that suitable clubheads and shafts could be obtained from other
manufacturers, although the transition to other suppliers could result in
significant production delays and an adverse impact on results of operations
during the transition.
The Company uses United Parcel Service ("UPS") for substantially all ground
shipments of products to its domestic customers. The Company is considering
alternative methods of ground shipping to reduce its reliance on UPS, but no
change has been made. Any interruption in UPS services could have a material
adverse effect on the Company's sales and results of operations.
Callaway Golf's own production processes entail rigorous and continual
quality control inspection and require the application of significant resources
to the manufacturing process. The Company's executive offices and its product
development, manufacturing and distribution facilities are housed in facilities
leased and owned by the Company in Carlsbad, California.
In the ordinary course of its manufacturing process, the Company uses
paints and chemical solvents which are stored on-site. The waste created by use
of these materials is transported off-site on a regular basis by registered
waste haulers. As a standard procedure, a comprehensive audit of the treatment,
storage, and disposal facility with which the Company contracts for the disposal
of hazardous waste is performed annually by the Company. To date, the Company
has not experienced any material environmental compliance problems, although
there can be no assurance that such problems will not arise in the future.
The Company's size has made it a large consumer of certain materials,
including titanium and carbon fiber. Callaway Golf does not make these materials
itself, and must rely on its ability to obtain adequate supplies in the world
marketplace in competition with other users of such materials. While the Company
has been successful in obtaining its requirements for such materials thus far,
there can be no assurance that it will always be able to do so. An interruption
in the supply of such materials or a significant change in costs could have a
material adverse effect on the Company.
Competition
The market in which the Company does business is highly competitive, and is
served by a number of well-established and well-financed companies with
recognized brand names. While usage of the Company's drivers was dominant during
1997 on the PGA, SPGA, LPGA, Nike, PGA European and Women's Professional Golf
European Tour ("WPGET") Tours ("six pro tours"), its competitors included Taylor
Made, Cobra, Mizuno, Titleist, Cleveland and Ping. In the six pro tours, the
Company's competition for iron usage in 1997 included Ping, Mizuno, Titleist and
Top Flite. New product introductions by competitors continue to generate
increased market competition. While the Company believes that its products and
its marketing efforts continue to be competitive, there can be no assurance that
successful marketing activities by competitors will not negatively impact the
Company's future sales.
Additionally, the golf club industry, in general, has been characterized by
widespread imitation of popular club designs. A manufacturer's ability to
compete is in part dependent upon its ability to satisfy the various subjective
requirements of golfers, including the golf club's look and "feel," and the
level of acceptance that the golf club has among professional and other golfers.
The subjective preferences of golf club purchasers may also be subject to rapid
and unanticipated changes. There can be no assurance as to how long the
Company's golf clubs will maintain market acceptance.
As noted elsewhere in this Report, the Company has formed Callaway Golf
Ball Company for the purpose of designing, manufacturing and selling golf balls.
The golf ball business is highly competitive with a number of well-established
and well-financed competitors, including Titleist, Spalding, Sumitomo Rubber
Industries, Bridgestone and others. These competitors have established market
share in the golf ball business which will need to be penetrated in order for
the Company's golf ball business to be successful.
Intellectual Property
The Company seeks to protect its intellectual property rights, such as
product designs, manufacturing processes, new product research and concepts, and
trademarks. These rights are protected through the acquisition of utility and
design patents and trademark registrations, the maintenance of trade secrets,
the development of trade dress,
9
and, when necessary and appropriate, litigation against those who are, in the
Company's opinion, unfairly competing. In the United States, the Company has
applied for or been granted patents for certain features of its golf clubs.
Additionally, it has been granted trademark registrations for Callaway(R), Big
Bertha(R), Great Big Bertha(R), War Bird(R), S2H2(R), Odyssey(R), Stronomic(R)
and several other product names and descriptions. There is no assurance that,
prior to a court of competent jurisdiction validating them, any of these patents
or trademarks are enforceable, although the Company believes them to be
enforceable.
The Company has an active program of enforcing its proprietary rights
against companies and individuals who market or manufacture counterfeits and
"knock off" products, and aggressively asserts its rights against infringers of
its patents, trademarks, and trade dress. However, there is no assurance that
these efforts will reduce the level of acceptance obtained by these infringers.
Additionally, there can be no assurance that other golf club manufacturers will
not be able to produce successful golf clubs which imitate the Company's designs
without infringing any of the Company's patents, trademarks, or trade dress.
An increasing number of the Company's competitors have, like the Company
itself, sought to obtain patent, trademark or other protection of their
proprietary rights and designs. From time to time others have or may contact the
Company to claim that they have proprietary rights which have been infringed by
the Company and/or its products. The Company evaluates any such claims and,
where appropriate, has obtained or sought to obtain licenses or other business
arrangements. (See also Item 3, "Legal Proceedings.") To date, there have been
no interruptions in the Company's business as the result of any claims of
infringement. No assurance can be given, however, that the Company will not be
adversely affected in the future by the assertion of intellectual property
rights belonging to others. This effect could include alteration of existing
products, withdrawal of existing products and delayed introduction of new
products.
Various patents have been issued to the Company's competitors in the golf
ball industry. As Callaway Golf Ball Company develops a new golf ball product,
it must avoid infringing on these patents or other intellectual property rights,
or it must obtain licenses to use them lawfully. If any new golf ball product
was found to infringe on protected technology, the Company could incur
substantial costs to redesign its golf ball product or to defend legal actions.
Despite its efforts to avoid such infringements, there can be no assurance that
Callaway Golf Ball Company will not infringe on the patents or other
intellectual property rights of third parties in its development efforts, or
that it will be able to obtain licenses to use any such rights, if necessary.
The Company has stringent procedures to maintain the secrecy of its
confidential business information. These procedures include criteria for
dissemination of information and written confidentiality agreements with
employees and vendors. Suppliers, when engaged in joint research projects, are
required to enter into additional confidentiality agreements. There can be no
assurance that these measures will prove adequate in all instances to protect
the Company's confidential information.
Seasonality
In the golf equipment industry, sales to retailers are generally seasonal
due to lower demand in the retail market in the cold weather months covered by
the fourth and first quarters. The Company's business generally follows this
seasonal trend and the Company expects this to continue. Unusual weather
conditions such as the "El Nino" weather patterns being experienced in the
winter of 1997-1998 will compound these seasonal affects and could have a
negative effect on the Company's sales and results of operations.
Product Warranties
The Company supports all of its golf clubs with a two year written
warranty. Since the Company does not rely upon traditional designs in the
development of its golf clubs, its products may be more likely to develop
unanticipated problems than those of many of its competitors which use
traditional designs. For example, clubs have been returned with cracked
clubheads, broken graphite shafts and loose medallions. While any breakage or
warranty problems are deemed significant to the Company, the incidence of clubs
returned as a result of cracked clubheads, broken graphite shafts, loose
medallions and other product problems to date has not been material in relation
to the volume of Callaway Golf clubs which have been sold. The Company monitors
closely the level and nature of any product breakage and, where appropriate,
seeks to incorporate design and production changes to assure its customers of
the highest quality available in the market. The Company's Biggest Big
Bertha(TM) Drivers, because of their large clubhead size and extra
10
long, lightweight graphite shafts, have experienced shaft breakage at a rate
higher than generally experienced with the Company's other metal woods.
Significant increases in the incidence of breakage or other product problems may
adversely affect the Company's sales and image with golfers. At December 31,
1997, 1996 and 1995, the Company's reserves for warranty claims were
approximately $28.1 million $27.3 million, and $23.8 million, respectively. The
increase in this reserve over the last several years has been primarily
attributable to increased sales volume and change in product mix. The Company
believes that it has sufficient reserves for warranty claims; however, there can
be no assurance that these reserves will be sufficient if the Company were to
experience an unusually high incidence of shaft breakage or other product
problems.
Employees
As of December 31, 1997, the Company and its subsidiaries had 2,662 full-
time employees, including 393 employed in sales and marketing, 169 employed in
research and development and product engineering and 1,573 employed in
production. The remaining full-time employees are administrative and support
staff.
The Company considers its employee relations to be good. None of the
Company's employees are represented by unions. The Company's commitment to the
development of new products and the seasonal nature of its business may result
in fluctuations in production levels. The Company attempts to manage these
fluctuations to maintain employee morale and avoid disruption. However, it is
possible that such fluctuations could strain employee relations in the future.
Year 2000 Compliance
Historically, certain computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
computer recognizing a date using "00" as the year 1900 rather than the year
2000. This, in turn, could result in major system failures or miscalculations,
and is generally referred to as the "Year 2000" problem.
In October 1997, the Company implemented a new computer system which runs
most of the Company's principal data processing and financial reporting software
applications. The application software used on this new system is Year 2000
compliant. The information systems of certain of the Company's subsidiaries,
however, have not been converted to the new system, but the Company is in the
process of implementing such conversion. Pursuant to the Company's Year 2000
Plan, the Company is currently evaluating its computerized production equipment
to assure that the transition to the Year 2000 will not disrupt the Company's
manufacturing capabilities. The Company is currently assessing the extent of the
Year 2000 impact on its suppliers, distributors, customers and other vendors.
Presently, the Company does not believe that Year 2000 compliance will result in
additional material investments by the Company, nor does the Company anticipate
that the Year 2000 problem will have material adverse effects on the business
operations or financial performance of the Company. There can be no assurance,
however, that the Year 2000 problem will not adversely affect the Company and
its business.
Management Information Systems
As noted above, in October 1997, the Company converted to a new integrated
computer system which runs substantially all of the Company's principal data
processing and financial reporting software applications. As the Company enters
its traditional busy selling season in the second and third quarters, the
demands on the Company's information systems will increase substantially. Any
significant disruptions or delays in the Company's information systems during
this period could negatively impact the Company's ability to process sales
orders and compile other management information, which in turn could have
material adverse effects on the Company's sales and results of operations.
Item 2. Properties.
The Company and its subsidiaries conduct operations in both owned and
leased properties, located primarily near the Company's headquarters in
Carlsbad, California. The 19 buildings utilized in the Company's Carlsbad
operations include corporate offices, manufacturing, research and development,
warehousing and distribution facilities, and comprise approximately 786,000
square feet of space. Eight of these properties, representing approximately
426,000 square feet of space are owned by the Company; an additional 11
properties, representing approximately
11
360,000 square feet of space, are leased. The Company also owns 11 acres of
undeveloped land near its headquarters upon which it intends to construct a golf
ball manufacturing plant for its wholly-owned subsidiary, Callaway Golf Ball
Company. In addition, the Company and its subsidiaries conduct certain
international operations outside of the United States, located in the United
Kingdom, Germany, Japan and Korea, in leased facilities comprising approximately
65,000 square feet.
The Company believes that its facilities are adequate to meet its current
requirements. The Company has experienced rapid growth in its business for the
last several years, however, and in order to accommodate this growth, the
Company has regularly acquired or leased new facilities for manufacturing,
research and development, office and storage. Although there can be no assurance
that the Company will achieve similar growth in its business in the future, the
Company expects that its practice of regularly acquiring or leasing additional
properties near its headquarters in Carlsbad, California is likely to continue
in the near term.
Item 3. Legal Proceedings.
The Company, incident to its business activities, is the plaintiff in
several legal proceedings, both domestically and abroad, in various stages of
development. In conjunction with the Company's program of enforcing its
proprietary rights, the Company has initiated a number of actions against
alleged infringers under the Lanham Act, 15 USCA Sections 1051-1127, the U.S.
Patent Act, 35 USCA Sections 1-376, and other pertinent laws. Some defendants in
these actions have, among other things, contested the validity and/or the
enforceability of some of the Company's patents and/or trademarks. Others have
asserted counterclaims against the Company. The Company believes that the
outcome of these matters individually and in the aggregate will not have a
material adverse effect upon the financial position or results of operations of
the Company. It is possible, however, that in the future one or more defenses or
claims asserted by defendants in those actions may succeed, resulting in the
loss of all or part of the rights under one or more patents, loss of a
trademark, a monetary award against the Company, or some other loss to the
Company. One or more of these results could adversely affect the Company's
overall ability to protect its product designs and ultimately limit its future
success in the marketplace.
In addition, the Company from time to time receives information claiming
that products sold by the Company infringe or may infringe patent or other
intellectual property rights of third parties. To date, the Company has not
experienced any material expense or disruption associated with any such
potential infringement matters. It is possible, however, that in the future one
or more claims of potential infringement could lead to litigation, the need to
obtain additional licenses, the need to alter a product to avoid infringement,
or some other action or loss by the Company.
The Company and its subsidiaries, incident to their business activities,
from time to time are parties to a number of legal proceedings in various stages
of development, including but not limited to those described above. The Company
believes that the majority of these proceedings involve matters as to which
liability, if any, will be adequately covered by insurance. With respect to
litigation outside the scope of applicable insurance coverage and to the extent
insured claims may exceed liability limits, it is the opinion of the management
of the Company that the probable result of these matters individually and in the
aggregate will not have a material adverse effect upon the Company's financial
position, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Securities Holders.
None.
12
Executive Officers of the Registrant
Biographical information concerning certain of the Company's officers is
set forth below.
Name Age Position(s) Held
---- --- ----------------
Ely Callaway............. 78 Founder, Chairman, and Chief of Advertising,
Press and Public Relations
Donald H. Dye............ 55 President and Chief Executive Officer
Bruce Parker............. 42 Senior Executive Vice President, Domestic Sales
and Chief Merchant
John P. Duffy............ 57 Senior Executive Vice President, Chief of
Manufacturing
Richard C. Helmstetter... 56 Senior Executive Vice President, Chief of New
Golf Club Products
Steven C. McCracken...... 47 Executive Vice President, Licensing, Chief
Legal Officer and Secretary
Frederick R. Port........ 56 Senior Executive Vice President, International
Sales
David A. Rane............ 43 Executive Vice President, Administration and
Planning, and Chief Financial Officer
Charles J. Yash.......... 49 Executive Vice President; President and Chief
Executive Officer, Callaway Golf Ball Company
Ely Callaway, Founder, has served as Chairman of the Board of the Company
since the Company's formation in 1982 and also currently serves as the Company's
Chief of Advertising, Press and Public Relations and Chairman of the Executive
and Compensation Committee of the Company's Board of Directors. He served as
Chief Executive Officer from 1982 to May 1996. From 1974 to 1981, Mr. Callaway
founded and operated Callaway Vineyard and Winery in Temecula, California, until
it was sold. From 1946 to 1973, Mr. Callaway worked in the textile industry,
where he served as a Divisional President of several major divisions of
Burlington Industries, Inc., and in 1968 was elected Corporate President and
Director of Burlington, which at the time was the world's largest textile
company. Prior to 1945, Mr. Callaway served a five-year tour of duty in the
U.S. Army Quartermaster Corps. Mr. Callaway is a 1940 graduate of Emory
University.
Donald H. Dye serves as President and Chief Executive Officer of the
Company. He has served as Chief Executive Officer since May 1996, as President
since 1993, and as a Director of the Company since its formation in 1982. He
served as Chief Operating Officer from 1991 until May 1996, as Secretary from
1982 until 1994, as Vice Chairman of the Board from 1991 to 1993, and as General
Counsel from 1991 until 1994. From 1973 to 1991, Mr. Dye was in the private
practice of law in Riverside, California. During that period, he provided legal
services to Callaway Vineyard & Winery, Mr. Callaway and the Company. Prior to
1973, Mr. Dye served five years in the U.S. Air Force as a member of the Judge
Advocates General Corps. Mr. Dye is a 1967 graduate of UCLA School of Law.
Bruce Parker, has served as a Director of the Company since July 1996,
Senior Executive Vice President since 1993 and Chief Merchant since 1991. In
addition, since April 1996, Mr. Parker has served as President of Callaway Golf
Sales Company, the Company's wholly-owned subsidiary responsible for domestic
sales operations. Mr. Parker also has served the Company in various vice
presidential positions since 1984 and became Executive Vice President, Chief
Merchant in October 1991. Prior to 1984, Mr. Parker worked as a sales manager
for various golf club manufacturers in California.
John P. Duffy has served the Company in various vice presidential positions
since 1989 and became Executive Vice President, Chief of Manufacturing in March
1990 and Senior Executive Vice President in April 1993. From 1988 to 1989, Mr.
Duffy served as Vice President--Product Line Management of Taylor Made Golf
Company. From 1984 to 1988, Mr. Duffy served as Vice President- Manufacturing of
Taylor Made. From 1982 to 1984, Mr.
13
Duffy served as General Manager--Western Division of Taylor Made. Prior to 1982,
Mr. Duffy owned and operated golf retail outlets in Florida and California under
the name "House of Golf."
Richard C. Helmstetter has served the Company as Senior Executive Vice
President, Chief of New Golf Club Products since February 1998 and as Senior
Executive Vice President, Chief of New Products from 1993 to February 1998. Mr.
Helmstetter served as President from 1990 to 1993 and as Executive Vice
President from 1986 to 1990. From 1967 to 1986, Mr. Helmstetter served as
President of Adam Ltd., a pool cue manufacturing and merchandising company which
he founded and operated in Japan. During 1982 and 1983, Mr. Helmstetter also
consulted extensively for several Japanese, European and American companies,
including Bridgestone Corporation's strategic planning group. Mr. Helmstetter is
a 1966 graduate of the University of Wisconsin.
Steven C. McCracken has served the Company as Executive Vice President,
Licensing and Chief Legal Officer since April 1997 and as Secretary since April
1994. He has served as an Executive Vice President since April 1996 and served
as General Counsel from 1994 to April 1997. He served as Vice President from
1994 to April 1996. Prior to joining the Company, Mr. McCracken was a partner at
Gibson, Dunn & Crutcher for 11 years, and had been in the private practice of
law for over 18 years. During part of that period, he provided legal services to
the Company. Mr. McCracken received a B.A., magna cum laude, from the University
of California at Irvine in 1972 and a J.D. from the University of Virginia in
1975.
Frederick R. Port has served as Senior Executive Vice President,
International Sales since April 1997 and as President of the Company's
International division since April 1996. He served as Executive Vice President,
International Sales, Licensing and Business Development of the Company from
April 1996 to April 1997. He served as Executive Vice President, Business
Development, of the Company from 1995 to April 1996. From 1993 to 1995, Mr. Port
was the Managing Director of Korn/Ferry International for the Southern
California region (an executive recruiting and strategic consulting firm). Mr.
Port served as an infantry officer in the United States Army. He is a 1963
graduate of UCLA and received his MBA with honors from UCLA in 1966.
David A. Rane has served the Company as Executive Vice President, Finance
and Administration since October 1997 and as Chief Financial Officer since 1994.
He served as an Executive Vice President since April 1996, and as Vice President
from 1994 to April 1996. Mr. Rane served as Director of Investor Relations from
1993 to 1994. Prior to 1993, Mr. Rane was a senior manager for the accounting
firm of Price Waterhouse LLP, and served a total of 14 years in public
accounting. Mr. Rane is a 1978 graduate of Brigham Young University.
Charles J. Yash has served as an Executive Vice President of the Company
since February 1998, as a Director of the Company since July 1996, and as
President and Chief Executive Officer of Callaway Golf Ball Company, a wholly-
owned subsidiary of the Company, since June 1996. From 1992 to June 1996, Mr.
Yash was President and Chief Executive Officer and a Director of Taylor Made
Golf Company. From 1979 to 1992, Mr. Yash was employed in various marketing
positions with the golf products division of Spalding Sports Worldwide,
including Corporate Vice President and General Manager-Golf Products, from 1988
to 1992. From 1970 to 1975, Mr. Yash served in the United States Navy in
various positions. Mr. Yash completed the Advanced Executive Program at the
University of Massachusetts in 1982, received his M.B.A. in 1977 from Harvard
Business School and graduated with a Bachelor of Science degree from the U.S.
Naval Academy in 1970.
The Company has employment agreements with Messrs. Callaway, Parker, Duffy,
McCracken, Port and Rane for terms commencing January 1, 1997 and ending
December 31, 1999. The term of Mr. Dye's employment agreement also commenced
January 1, 1997 and ends December 31, 2001. The Company also has an employment
agreement with Mr. Yash which commenced May 15, 1996 and ends on May 14, 2001.
The Company has a new three-year employment agreement with Mr. Helmstetter
commencing January 1, 1998 which may be extended by either the Company or Mr.
Helmstetter until as late as December 31, 2012.
14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information in response to Item 5 is contained on page 48 of the Company's
1997 Annual Report to Shareholders, which information is incorporated herein by
reference.
Item 6. Selected Financial Data.
Information in response to Item 6 is contained on page 28 of the Company's
1997 Annual Report to Shareholders, which information is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Information in response to Item 7 is contained on pages 29 through 33 of
the Company's 1997 Annual Report to Shareholders, which information is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Information in response to Item 8 is contained on pages 34 through 48 of
the Company's 1997 Annual Report to Shareholders, which information is
incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
Certain information concerning the Company's executive officers is included
under the caption "Executive Officers of the Registrant" following Part I, Item
4. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and greater than 10% shareholders to file initial
reports of ownership (on Form 3) and periodic changes in ownership (on Forms 4
and 5) of Company securities with the Securities and Exchange Commission and the
New York Stock Exchange. Based solely on its review of copies of such forms and
such written representations regarding compliance with such filing requirements
as were received from its executive officers, directors and greater than 10%
shareholders, the Company believes that all such Section 16(a) filing
requirements were complied with during 1997 with one exception: the January
1997 Form 4 of Mr. Michael Sherwin, a former Director of the Company, was filed
three days late due to clerical error.
Other information required by Item 10 has been included in the Company's
definitive proxy statement under the caption "Election of Directors," as filed
with the Securities and Exchange Commission (the "Commission") on March 16, 1998
pursuant to Regulation 14A, which information is incorporated herein by
reference.
Item 11. Executive Compensation.
The Company maintains employee benefit plans and programs in which its
executive officers are participants. Copies of certain of these plans and
programs are set forth or incorporated by reference as Exhibits 10.1 to 10.19.3
to this Report. Information required by Item 11 has been included in the
Company's definitive proxy statement under the captions "Compensation of
Executive Officers," "Report of the Executive and Compensation Committee of the
Board of Directors on Executive Compensation," "Performance Graph" and "Election
of Directors," as filed with the Commission on March 16, 1998 pursuant to
Regulation 14A, which information is incorporated herein by reference.
15
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 has been included in the Company's
definitive proxy statement under the caption "Beneficial Ownership of the
Company's Securities," as filed with the Commission on March 16, 1998 pursuant
to Regulation 14A, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 has been included in the Company's
definitive proxy statement under the caption "Certain Transactions," as filed
with the Commission on March 16, 1998 pursuant to Regulation 14A, which
information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) Documents filed as part of this report:
1. Financial Statements. The following consolidated financial
statements of Callaway Golf Company and its subsidiaries included
in Part II, Item 8, are incorporated by reference from pages 34
through 47 of the 1997 Annual Report to Shareholders:
Consolidated Balance Sheet at December 31, 1997 and 1996
Consolidated Statement of Income for the three years ended
December 31, 1997
Consolidated Statement of Cash Flows for the three years ended
December 31, 1997
Consolidated Statement of Shareholders' Equity for the three
years ended December 31, 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. Financial Statement Schedule.
Report of Independent Accountants on Financial Statement
Schedule
Schedule II - Consolidated Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or notes thereto.
3. Exhibits.
3.1.1 Restated Articles of Incorporation of the Company./(2)/
3.1.2 Certificate of Amendment of Articles of Incorporation,
effective February 10, 1995./(3)/
3.2 Certificate of Determination of Rights, Preferences,
Privileges and Restrictions of Series A Junior
Participating Preferred Stock./(5)/
3.3 Bylaws of the Company (as amended through May 10,
1996)./(9)/
4.1 Dividend Reinvestment and Stock Purchase Plan./(1)/
4.2 Rights Agreement by and between the Company and
Chemical Mellon Shareholder Services as Rights Agent
dated as of June 21, 1995./(5)/
16
Executive Compensation Contracts/Plans
10.1 Chairman and Founder Employment Agreement by and between
the Company and Ely Callaway entered into as of January
1, 1997./(15)/
10.2 Chief Executive Officer Employment Agreement by and
between the Company and Donald H. Dye entered into as
of January 1, 1997./(17)/
10.3 Executive Officer Employment Agreement by and between
the Company and Bruce Parker entered into as of as of
January 1, 1997./(13)/
10.4 Executive Officer Employment Agreement by and between
the Company and Richard Helmstetter entered into as of
January 1, 1998.
10.5 Executive Officer Employment Agreement by and between
the Company and John Duffy entered into as of January 1,
1997./(13)/
10.6 Executive Officer Employment Agreement by and between
the Company and Steven C. McCracken entered into as of
January 1, 1997./(13)/
10.7.1 Executive Officer Employment Agreement by and between
the Company and Frederick R. Port entered into as of
January 1, 1997./(13)/
10.7.2 Stock Option Agreement by and between the Company and
Frederick R. Port dated as of September 1, 1995./(6)/
10.8 Executive Officer Employment Agreement by and between
the Company and David Rane entered into as of January 1,
1997./(13)/
10.9.1 Officer Employment Agreement by and between the Company
and Charles Yash entered into as of May 15, 1996./(11)/
10.9.2 Stock Option Agreement by and between the Company and
Charles J. Yash dated as of May 10, 1996./(10)/
10.10 Employment Agreement by and between the Company and
Elmer L. Ward, Jr. entered into as of July 1,
1996./(12)/
10.11.1 Form of Tax Indemnification Agreement./(5)/
10.11.2 Form of Amendment No. 1 to Form of Tax Indemnification
Agreement./(12)/
10.12 Executive Deferred Compensation Plan (as amended and
restated through February 6, 1997)./(14)/
10.13 Callaway Golf Company Executive Non-Discretionary Bonus
Plan./(4)/
10.14 Callaway Golf Company 1998 Executive Non-Discretionary
Bonus Plan./(14)/
10.15 1991 Stock Incentive Plan (as amended and restated April
1994)./(3)/
10.16 Amended and Restated Stock Option Plan effective April
2, 1991./(8)/
10.17 1996 Stock Option Plan (as amended and restated through
April 17, 1997)./(14)/
10.18 Callaway Golf Company Non-Employee Directors Stock
Option Plan (as Amended and Restated April 17,
1996)./(10)/
10.19.1 Form of Indemnification Agreement by and between the
Company and the following directors: William Baker,
Richard Rosenfield, William Schreyer and Michael
Sherwin, all dated January 25, 1995./(3)/
10.19.2 Indemnification Agreement by and between the Company and
Ms. Aulana L. Peters, Director, dated July 18,
1996./(13)/
10.19.3 Indemnification Agreement by and between the Company and
Vernon E. Jordan, Jr. dated July 16, 1997./(18)/
Other Contracts
10.20.1 Loan Agreement by and between the Company and First
Interstate Bank of California dated December 1,
1994./(3)/
10.20.2 Amended and Restated Revolving Credit Note made by the
Company in the principal amount of $50,000,000 and
payable to First Interstate Bank of California, dated
December 1, 1995 and First Amendment to Loan Agreement
by and between the Company and First Interstate Bank of
California dated December 1, 1995./(9)/
10.20.3 Extension of Amended and Restated Revolving Credit Note
dated December 11, 1997.
10.21 Trust Agreement between Callaway Golf Company and Sanwa
Bank California as Trustee, for the benefit of
participating employees, dated July 14, 1995./(7)/
10.22 Asset Purchase Agreement dated July 20, 1997 by and
among Callaway Golf Company, Odyssey Sports, Inc. and
U.S. Industries, Inc./(16)/
17
13.1 Portions of the Company's 1997 Annual Report to
Shareholders (with the exception of the information
incorporated by reference specifically in this Report on
Form 10-K, the 1997 Annual Report to Shareholders is not
deemed to be filed as a part of this Report on Form
10-K).
21.1 List of Subsidiaries.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule for the year ended
December 31, 1997.
27.2 Restated Financial Data Schedule for the year ended
December 31, 1996.
27.3 Restated Financial Data Schedule for the nine months
ended September 30, 1997 and 1996.
27.4 Restated Financial Data Schedule for the six months
ended June 30, 1997 and 1996.
27.5 Restated Financial Data Schedule for the three months
ended March 31, 1997 and 1996.
/(1)/ Included as the Prospectus in the Company's Registration
Statement on Form S-3 (No. 33-77024), as filed with the
Securities and Exchange Commission on March 29, 1994,
and incorporated herein by reference.
/(2)/ Included as an exhibit to the Company's Registration
Statement on Form S-8 (No. 33-85692), as filed with the
Securities and Exchange Commission on October 28, 1994,
and incorporated herein by reference.
/(3)/ Included as an exhibit to the Company's 1994 Annual
Report on Form 10-K, as filed with the Securities and
Exchange Commission on March 31, 1995, and incorporated
herein by reference.
/(4)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended March 31, 1995, as
filed with the Securities and Exchange Commission on May
10, 1995, and incorporated herein by reference.
/(5)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1995, as
filed with the Securities and Exchange Commission on
August 12, 1995, and incorporated herein by reference.
/(6)/ Included as an exhibit to the Company's Registration
Statement on Form S-8 (No. 33-98750), as filed with the
Securities and Exchange Commission on October 30, 1995,
and incorporated herein by reference.
/(7)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1995, as
filed with the Securities and Exchange Commission on
November 14, 1995, and incorporated herein by reference.
/(8)/ Included as an exhibit to the Company's 1995 Annual
Report on Form 10-K, as filed with the Securities and
Exchange Commission on April 1, 1996, and incorporated
herein by reference.
/(9)/ Included as an exhibit to the Company's Registration
Statement on Form S-8 (No. 333-5719), as filed with the
Securities and Exchange Commission on June 11, 1996, and
incorporated herein by reference.
/(10)/ Included as an exhibit to the Company's Registration
Statement on Form S-8 (No. 333-5721), as filed with the
Securities and Exchange Commission on June 11, 1996, and
incorporated herein by reference.
/(11)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996, as
filed with the Securities and Exchange Commission on
August 14, 1996, and incorporated herein by reference.
18
/(12)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1996, as
filed with the Securities and Exchange Commission on
November 13, 1996, and incorporated herein by reference.
/(13)/ Included as an exhibit to the Company's 1996 Annual
Report on Form 10-K, as filed with the Securities and
Exchange Commission on March 31, 1997, and incorporated
herein by reference.
/(14)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended March 31, 1997, as
filed with the Securities and Exchange Commission on May
15, 1997, and incorporated herein by reference.
/(15)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1997, as
filed with the Securities and Exchange Commission on
August 14, 1997, and incorporated herein by reference.
/(16)/ Included as an exhibit to the Company's Current Report
on Form 8-K dated August 8, 1997, as filed with the
Securities and Exchange Commission on August 22, 1997,
and incorporated herein by reference.
/(17)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1997, as
filed with the Securities and Exchange Commission on
November 14, 1997, and incorporated herein by reference.
(b) Reports on Form 8-K:
On October 22, 1997, the Company filed Amendment No. 1 to Current Report
on Form 8-K/A dated August 8, 1997, regarding the consummation of the
acquisition of substantially all of the assets of Odyssey Sports, Inc.,
reported under Items 2 and 7. The following financial statements were
filed under Item 7 with that Report:
(a) Financial Statements of Business Acquired.
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.
- 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.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CALLAWAY GOLF COMPANY
Date: March 30, 1998 /s/ ELY CALLAWAY
---------------------------------------
Ely Callaway
Founder, Chairman and Chief of
Advertising, Press and Public Relations
/s/ DONALD H. DYE
---------------------------------------
Donald H. Dye
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Principal Executive Officers And Directors:
/s/ ELY CALLAWAY Founder, Chairman, and Chief March 30, 1998
- ----------------------------------- of Advertising, Press and Public
Ely Callaway Relations
/s/ DONALD H. DYE President and Chief Executive March 30, 1998
- ----------------------------------- Officer
Donald H. Dye
Principal Financial And Accounting Officer:
/s/ DAVID A. RANE Executive Vice President, March 30, 1998
- ----------------------------------- Administration and Planning, and
David A. Rane Chief Financial Officer
Other Directors:
/s/ WILLIAM C. BAKER Director March 30, 1998
- -----------------------------------
William C. Baker
/s/ VERNON E. JORDON, JR. Director March 30, 1998
- -----------------------------------
Vernon E. Jordon, Jr.
/s/ BRUCE PARKER Director March 30, 1998
- -----------------------------------
Bruce Parker
/s/ AULANA L. PETERS Director March 30, 1998
- -----------------------------------
Aulana L. Peters
/s/ FREDERICK R. PORT Director March 30, 1998
- -----------------------------------
Frederick R. Port
/s/ RICHARD ROSENFIELD Director March 30, 1998
- -----------------------------------
Richard Rosenfield
/s/ WILLIAM SCHREYER Director March 30, 1998
- -----------------------------------
William Schreyer
/s/ ELMER WARD Director March 30, 1998
- -----------------------------------
Elmer Ward
/s/ CHARLES J. YASH Director March 30, 1998
- -----------------------------------
Charles J. Yash
20
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors and Shareholders
of Callaway Golf Company
Our audits of the consolidated financial statements referred to in our report
dated January 28, 1998, except as to Note 14, which is as of February 11, 1998,
appearing on page 47 of the 1997 Annual Report to Shareholders of Callaway Golf
Company (which report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
San Diego, California
January 28, 1998
21
SCHEDULE II
CALLAWAY GOLF COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
For The Three Year Period Ended December 31, 1997
Allowance Allowance Allowance
for Doubtful for Obsolete for Warranty
Date Accounts Inventory Costs
- --------------------------------------------------------------------------------
(in thousands)
Balance, December 31, 1994 $6,412 $4,959 $ 18,182
Provision 101 12,002
Write-off (103) (163) (6,415)
Recovery
----------------------------------------------
Balance, December 31, 1995 6,410 4,796 23,769
Provision 231 800 10,735
Write-off (304) (312) (7,201)
Recovery
----------------------------------------------
Balance, December 31, 1996 6,337 5,284 27,303
Provision 1,354 743 13,726
Write-off (645) (353) (12,970)
Recovery
----------------------------------------------
Balance, December 31, 1997 $7,046 $5,674 $ 28,059
==============================================
22
EXHIBIT INDEX
SEQ. PAGE
EXHIBITS NUMBER
- -------- ----------
3.1.1 Restated Articles of Incorporation of the Company./(2)/
3.1.2 Certificate of Amendment of Articles of Incorporation,
effective February 10, 1995./(3)/
3.2 Certificate of Determination of Rights, Preferences,
Privileges and Restrictions of Series A Junior
Participating Preferred Stock./(5)/
3.3 Bylaws of the Company (as amended through May 10,
1996)./(9)/
4.1 Dividend Reinvestment and Stock Purchase Plan./(1)/
4.2 Rights Agreement by and between the Company and
Chemical Mellon Shareholder Services as Rights Agent
dated as of June 21, 1995./(5)/
Executive Compensation Contracts/Plans
10.1 Chairman and Founder Employment Agreement by and between
the Company and Ely Callaway entered into as of January
1, 1997./(15)/
10.2 Chief Executive Officer Employment Agreement by and
between the Company and Donald H. Dye entered into as
of January 1, 1997./(17)/
10.3 Executive Officer Employment Agreement by and between
the Company and Bruce Parker entered into as of as of
January 1, 1997./(13)/
10.4 Executive Officer Employment Agreement by and between
the Company and Richard Helmstetter entered into as of
January 1, 1998.
10.5 Executive Officer Employment Agreement by and between
the Company and John Duffy entered into as of January 1,
1997./(13)/
10.6 Executive Officer Employment Agreement by and between
the Company and Steven C. McCracken entered into as of
January 1, 1997./(13)/
10.7.1 Executive Officer Employment Agreement by and between
the Company and Frederick R. Port entered into as of
January 1, 1997./(13)/
10.7.2 Stock Option Agreement by and between the Company and
Frederick R. Port dated as of September 1, 1995./(6)/
10.8 Executive Officer Employment Agreement by and between
the Company and David Rane entered into as of January 1,
1997./(13)/
10.9.1 Officer Employment Agreement by and between the Company
and Charles Yash entered into as of May 15, 1996./(11)/
10.9.2 Stock Option Agreement by and between the Company and
Charles J. Yash dated as of May 10, 1996./(10)/
10.10 Employment Agreement by and between the Company and
Elmer L. Ward, Jr. entered into as of July 1,
1996./(12)/
10.11.1 Form of Tax Indemnification Agreement./(5)/
10.11.2 Form of Amendment No. 1 to Form of Tax Indemnification
Agreement./(12)/
10.12 Executive Deferred Compensation Plan (as amended and
restated through February 6, 1997)./(14)/
10.13 Callaway Golf Company Executive Non-Discretionary Bonus
Plan./(4)/
10.14 Callaway Golf Company 1998 Executive Non-Discretionary
Bonus Plan./(14)/
10.15 1991 Stock Incentive Plan (as amended and restated April
1994)./(3)/
10.16 Amended and Restated Stock Option Plan effective April
2, 1991./(8)/
10.17 1996 Stock Option Plan (as amended and restated through
April 17, 1997)./(14)/
10.18 Callaway Golf Company Non-Employee Directors Stock
Option Plan (as Amended and Restated April 17,
1996)./(10)/
10.19.1 Form of Indemnification Agreement by and between the
Company and the following directors: William Baker,
Richard Rosenfield, William Schreyer and Michael
Sherwin, all dated January 25, 1995./(3)/
10.19.2 Indemnification Agreement by and between the Company and
Ms. Aulana L. Peters, Director, dated July 18,
1996./(13)/
10.19.3 Indemnification Agreement by and between the Company and
Vernon E. Jordan, Jr. dated July 16, 1997./(18)/
Other Contracts
10.20.1 Loan Agreement by and between the Company and First
Interstate Bank of California dated December 1,
1994./(3)/
10.20.2 Amended and Restated Revolving Credit Note made by the
Company in the principal amount of $50,000,000 and
payable to First Interstate Bank of California, dated
December 1, 1995 and First Amendment to Loan Agreement
by and between the Company and First Interstate Bank of
California dated December 1, 1995./(9)/
10.20.3 Extension of Amended and Restated Revolving Credit Note
dated December 11, 1997.
10.21 Trust Agreement between Callaway Golf Company and Sanwa
Bank California as Trustee, for the benefit of
participating employees, dated July 14, 1995./(7)/
10.22 Asset Purchase Agreement dated July 20, 1997 by and
among Callaway Golf Company, Odyssey Sports, Inc. and
U.S. Industries, Inc./(16)/
23
13.1 Portions of the Company's 1997 Annual Report to
Shareholders (with the exception of the information
incorporated by reference specifically in this Report on
Form 10-K, the 1997 Annual Report to Shareholders is not
deemed to be filed as a part of this Report on Form
10-K).
21.1 List of Subsidiaries.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule for the year ended
December 31, 1997.
27.2 Restated Financial Data Schedule for the year ended
December 31, 1996.
27.3 Restated Financial Data Schedule for the nine months
ended September 30, 1997 and 1996.
27.4 Restated Financial Data Schedule for the six months
ended June 30, 1997 and 1996.
27.5 Restated Financial Data Schedule for the three months
ended March 31, 1997 and 1996.
/(1)/ Included as the Prospectus in the Company's Registration
Statement on Form S-3 (No. 33-77024), as filed with the
Securities and Exchange Commission on March 29, 1994,
and incorporated herein by reference.
/(2)/ Included as an exhibit to the Company's Registration
Statement on Form S-8 (No. 33-85692), as filed with the
Securities and Exchange Commission on October 28, 1994,
and incorporated herein by reference.
/(3)/ Included as an exhibit to the Company's 1994 Annual
Report on Form 10-K, as filed with the Securities and
Exchange Commission on March 31, 1995, and incorporated
herein by reference.
/(4)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended March 31, 1995, as
filed with the Securities and Exchange Commission on May
10, 1995, and incorporated herein by reference.
/(5)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1995, as
filed with the Securities and Exchange Commission on
August 12, 1995, and incorporated herein by reference.
/(6)/ Included as an exhibit to the Company's Registration
Statement on Form S-8 (No. 33-98750), as filed with the
Securities and Exchange Commission on October 30, 1995,
and incorporated herein by reference.
/(7)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1995, as
filed with the Securities and Exchange Commission on
November 14, 1995, and incorporated herein by reference.
/(8)/ Included as an exhibit to the Company's 1995 Annual
Report on Form 10-K, as filed with the Securities and
Exchange Commission on April 1, 1996, and incorporated
herein by reference.
/(9)/ Included as an exhibit to the Company's Registration
Statement on Form S-8 (No. 333-5719), as filed with the
Securities and Exchange Commission on June 11, 1996, and
incorporated herein by reference.
/(10)/ Included as an exhibit to the Company's Registration
Statement on Form S-8 (No. 333-5721), as filed with the
Securities and Exchange Commission on June 11, 1996, and
incorporated herein by reference.
/(11)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1996, as
filed with the Securities and Exchange Commission on
August 14, 1996, and incorporated herein by reference.
/(12)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1996, as
filed with the Securities and Exchange Commission on
November 13, 1996, and incorporated herein by reference.
/(13)/ Included as an exhibit to the Company's 1996 Annual
Report on Form 10-K, as filed with the Securities and
Exchange Commission on March 31, 1997, and incorporated
herein by reference.
/(14)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended March 31, 1997, as
filed with the Securities and Exchange Commission on May
15, 1997, and incorporated herein by reference.
/(15)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1997, as
filed with the Securities and Exchange Commission on
August 14, 1997, and incorporated herein by reference.
/(16)/ Included as an exhibit to the Company's Current Report
on Form 8-K dated August 8, 1997, as filed with the
Securities and Exchange Commission on August 22, 1997,
and incorporated herein by reference.
/(17)/ Included as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1997, as
filed with the Securities and Exchange Commission on
November 14, 1997, and incorporated herein by reference.
24