CALLAWAY GOLF COMPANY
(NYSE:ELY)
CFA Global Investment Challenge
February 19th, 2014
University of California, San Diego
Alex Allphin, Brandon Blanchard, Chris
Kwok, Sherry Pan, Vincent Lo
BUSINESS DESCRIPTION
BUSINESS DESCRIPTION
•
•
•
•
•
Golf Manufacture: Hard Goods, Soft Goods, Golf Balls
Global Business
Experiencing Four Consecutive Years of Diminishing Sales, and
Negative Bottom Line
New CEO, Chip Brewer, Initiated Turnaround Effort
Initiatives
– Drive change in corporate culture
– Refocus on the core business
– Stabilizing market share
– Reducing cost structure
– Restructuring Sales Organization
– Strengthening Retail Relationships
– Strengthening Global Tour Staff
– Strengthening Social Media Presence
– Releasing More Products
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Sales Breakdown By Product
Golf Ball
17%
Softgood
15%
Hardgood
68%
Sales Breakdown By Region
Financial
Analysis &
Valuation
Other
10%
Japan
20%
Europe
15%
Rest of
Asia
10%
America
45%
Sources: SEC Filing
Investment
Risk
INVESTMENT THESIS
INVESTMENT THESIS
Turnaround
Strategy
Earnings
97%
Institutional
Ownership
Recommendation:
HOLD
Target Price: $8.57
Key Point:
Qualitative and Quantitatively, We Do Not Expect Huge Fluctuations in
Stock Price over the Next Twelve Months
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Financial
Analysis &
Valuation
Investment
Risk
INDUSTRY AND COMPETITIVE ANALYSIS
INDUSTRY OVERVIEW
INDUSTRY OVERVIEW: MATURE CYCLICAL INDUSTRY
Projected Golf Industry Growth vs Projected GDP Growth
Current Market
• Diminishing Number of
Participants
• Slow Growth in Golf
Equipment Spending
6.23
3,722
3,495
3,198
3,309
3.35
3
2.588
2014
3.476
4.49
3.364
3.066
3
3
3
3
2015
2016
2017
2018
Forecast of US GDP Growth % (IMF)
3,356
Forecast of US GDP Growth % (Congressional Budget Office)
2,927
3,000
5.96
4.72
Consumer Spending on Golf Equipment (US)
4,000
6.55
Forecast Golf Industry Long Term Growth %
2,000
1,000
2007
2008
2009
2010
2011
2012
Narrow Future Prospects
• Trailing the Economy and the
Luxury Goods Industry
• Projected Industry Growth
Trails Projected GDP Growth
Sources: IMF, U.S. Congressional Budget Office, Callaway
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Financial
Analysis &
Valuation
Investment
Risk
COMPETITIVE ANALYSIS
Turnaround Objective: Stabilize Market Share and Build Up Growth Momentum
ELY Market Share Growth %
Catching Up to
the Market
Facing Fierce
Competition
Result
• Brand Management
• Product Innovation
• Sales & Marketing Strategy
• Niche Players: Titleist, Ping
• Large Sporting Companies: Taylormade,
Nike
• Market Share/Rating Shows
Improvement and Stability
• No Clear Advantage Over Competitors
ELY U.S. Market Share
% of Market Share
13.1
%
YTD 2012
14.2
%
YTD 2013
Sources: Callaway
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Financial
Analysis &
Valuation
Investment
Risk
FINANCIAL AND VALUATION ANALYSIS
FINANCIAL ANALYSIS
Restructuring and Cost Reduction Initiatives at Callaway:
•
•
•
•
Workforce Reductions
Sale of Non-Core Product Lines
Reorganization of Manufacturing and Distribution
Improved Debt structure:
ISSUED:
RETIRED:
3.75%
7.5%
Convertible Senior Notes
Convertible Preferred Stock
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Financial
Analysis &
Valuation
Investment
Risk
FINANCIAL ANALYSIS
Net Sales vs. Cost of Sales
2008-12
• Decreases in Net Sales Outpacing
Decreases in Cost of Sales
• GPM Forecasted to Improve 2014
and Beyond
2008
1,117.2
630.4
2009
950.8
607.0
2010
967.7
602.2
2011
886.5
575.2
2012
834.1
585.9
GPM: 2008-2012
50.0%
HIGH: 44%
40.0%
30.0%
LOW: 30%
20.0%
0
10.0%
0.0%
2008
2010
2012
2014
200
400
600
Net Sales
2016
800
1,000
1,200
Cost of Sales
Sources: SEC Filing, Student Research
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Financial
Analysis &
Valuation
Investment
Risk
FINANCIAL ANALYSIS
Improving Operating
Margins
• SG&A Expenses
Decreased by 28%
From 2011-12
• Advertising Expenses
have Increased Every
Year Since 2009, and
Grew by 23% From
2011 to 2012
OPERATING EXPENSE BY CATEGORY
29,370
85,473
36,383
98,431
34,309
92,756
56,020
32,213
81,487
47,336
48,432
53,051
29,542
66,773
65,068
231,782
213,261
208,853
212,274
203,020
2008
2009
2010
2011
2012
Research and development expenses
General and administrative expenses
Advertising costs
Selling expenses
Sources: SEC Filing
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Financial
Analysis &
Valuation
Investment
Risk
VALUATION
Comparable Companies Universe
Company (Ticker)
Market
Capitalization
(USD)
Description
Arctic Cat Inc.
(NASDAQ: ACAT)
595.41 M
Manufacture Recreational vehicles, Off-Road Vehicles
HEAD N.V.
(OTC PINK: HEDYY)
179.00 M
Branded Sporting Goods for Skiing, Tennis, and Diving markets
Worldwide
Johnson Outdoors Inc.
(NASDAQ: JOUT)
230.63 M
Manufacture Outdoor Equipment, Diving, Watercraft, and Motors
Products
Marine Products Corp.
(NYSE: MPX)
309.72 M
Manufacture Recreational Powerboats in the Sportboat, Deckboat,
Cruiser, and Sport Yacht Segments
Mizuno Corp.
(TSE: 8022)
737.85 M
Manufacture and Sale of Golf, Ski, Mountaineering, Baseball and
Other Sports Equipment, Sportswear, and Footwear
Polaris Industries Inc.
(NYSE: PII)
8.75 B
Manufacture Off-Road Vehicles, Snowmobiles, and On-Road
Vehicles
Source: Capital IQ, Student Research
Source: Student Research
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Financial
Analysis &
Valuation
Investment
Risk
VALUATION
Multiples
High
Low
Mean
Median
Comparable Company Analysis – Multiples
Total Enterprise Value Multiples
TEV/Forward Total
TEV/Forward
TEV/Total Revenue
Revenue
EBITDA
2.50
2.20
29.50
0.50
0.43
8.20
1.20
1.20
15.23
0.80
0.89
11.60
Implied Price per Share
High
Low
Mean
Median
Mean Equity Value
Across Multiples
High
Low
Mean
Median
Business
Description
27.10
4.66
12.52
8.03
25.45
4.22
13.41
9.74
Equity Value
1433.20
208.73
617.57
424.48
Price Per Share
23.23
3.54
10.12
7.01
Investment
Thesis
Industry &
Competitive
Analysis
21.10
5.18
10.43
7.72
Pricing Multiples
Forward P/E
40.26
12.96
23.42
21.49
P/TangBV
13.50
0.90
4.25
2.70
3.22
1.04
1.87
1.72
39.29
2.62
12.37
7.86
Source: Capital IQ, Student Research
Financial
Analysis &
Valuation
Investment
Risk
VALUATION
Discounted Cash Flow Analysis – Assumptions
Projected Revenue
Gross Profit Margin
1,050
42
40
950
2016*1.04
900
2015*1.04
850
36
2013P
2014*1.04
34
2014P
2013*1.06
32
2012*1.035
800
38
In %
In Millions
1,000
30
Callaway Golf
750
2013 2014 2015 2016 2017
Total Total Total Total Total
WACC Calculations
Source: Student Research
Capital Asset Pricing Model
Risk Free Rate
Beta
Historical Market Rate
Size Premium
Cost of Equity
2.40%
1.47
7.80%
1.5%
11.838%
Source: Student Research
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Beta
1.47
Market Risk Premium
Risk Free Rate
Size Premium
Corporate Tax Rate
% of Debt
% of Equity
Cost of Debt
5.40%
2.40%
1.50%
35.50%
31.39%
68.61%
3.50%
Cost of Equity
Weighted Average
Cost of Capital
11.838%
Financial
Analysis &
Valuation
8.88%
Sources: Company Filing,
Student Research
Investment
Risk
VALUATION
•
REVENUE FORECAST
•
•
–
2013: $836 MM
–
2014: 6% Compared with the 10% Forecast On
the Street
•
–
•
Discounted Cash Flow Analysis – Assumptions
INVENTORIES
–
2015 – 2017: 4% Straightline
GROSS PROFIT
–
2013: 38.5%
–
2014 – 2017: 40% Straightline
WACC
–
•
Shorter Product Life Cycle -> Increase in
Inventory (38%)
8.88%
TERMINAL VALUE
–
Perpetuity Growth Rate: 4.7% (GDP
Predictions for the Year 2017)
OPERATING EXPENSES
–
2013: 38.3%
–
2014 – 2017: 34.5% Straightline
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Financial
Analysis &
Valuation
Investment
Risk
VALUATION
Summary
• Weighed More Heavily
Toward DCF Model Due to Lack
of Direct Comparable
Companies
60%
Perpetuity Growth
$ 7.53
Target Price:
$8.57
• Market Has Already Fairly
Valued Callaway Stock
40%
Comparable
$10.12
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Financial
Analysis &
Valuation
Investment
Risk
INVESTMENT RISK
Competition
Occasional
Remote
Probability
Probable
INVESTMENT RISK
Global
Economy
Foreign
Exchange
Regulation
Negligible
Brand
Recognition
Supply and
Distribution
Marginal
Critical
Impact
Business
Description
Investment
Thesis
Industry &
Competitive
Analysis
Financial
Analysis &
Valuation
Investment
Risk
INVESTMENT RISK
Competition
Brand Recognition
Economic Condition
• No Answer to Innovation
• Endorsement Decline
• Artificial to Free Market
Sources: SEC Filing, Student Research
CONCLUSION
CONCLUSION
Extremely
Competitive
Marketplace
Industry
Growth
Trails GDP
Growth
Recommendation:
HOLD
Effective
Turnaround
Strategy
Target Price: $8.57
Improved
Product and
Marketing
Strategy
THANK YOU
Q&A
Q&A
Presentation Slides
Business Descriptions:
Business Descriptions
Investment Thesis:
Discounted Cash Flow Analysis – Assumptions
Discounted Cash Flow Analysis – Assumptions II
Summary
Investment Risk:
Investment Risk Chart
Investment Thesis
Investment Risk
Industry and Competitive Analysis:
Conclusion:
Industry Overview
Conclusion
Competitive Analysis
Financial Analysis and Valuation:
Financial Analysis
Reconstruction and Cost Reduction Initiative
Net Sales and Cost of Sales
Operating Margin
Valuation
Comparable Company Universe
APPENDIX
Appendix Slides
Investment Thesis:
Business Description:
Company Profile and Key Ratio
Sales Breakdown
Sales Breakdown 2
Industry and Competitive Analysis:
Brand Rating
Number of Golfers in U.S. and Europe
Luxury Goods Market vs Golf Market Growth
Golf Company Profiles
SWOT Analysis
Porter’s Five Forces
Index of Consumer Sentiment
Financial Analysis and Valuation:
Financial Analysis
Net Income Disaggregation
Pro Forma Key Financial Ratios
Pro Forma Income Statement
DCF: Key Assumptions
Comparable – Key Ratios
Discounted Cash Flow Analysis – Build Up
Investment Risk:
Investment Risk Chart
Conclusion:
Miscellaneous:
Stock Price Timeline
COMPANY PROFILE &
KEY RATIOS
Resources: SEC Filing
BRAND RATING
NUMBER OF GOLFERS IN
EUROPE AND U.S.
GOLF COMPANY
PROFILE
Sources: Student Research
SWOT ANALYSIS
PORTER’S FIVE ANALYSIS
Resources: Student Research
EFFICIENCY & PROFIT
MARGIN
Efficiency and Profit Margin Show Improvement
Select Financial Ratios, Actual and Projected
2010A 2011A 2012A
2013P
2014P
2015P
2016P
2017P
Current Ratio
3.10
2.50
2.40
2.33
2.30
2.40
2.43
2.60
Quick Ratio
1.14
0.95
0.89
0.94
0.89
0.99
0.99
1.13
Cash Conversion
Cycle
180.64 185.18 156.51 149.56 142.02 141.91 141.92 141.92
GP Margin
37.8%
35.1%
29.8%
38.5%
40.0%
40.0%
40.2%
40.0%
EBITDA Margin
0.6%
-5.6%
-9.4%
3.8%
7.6%
8.3%
9.0%
10.4%
Debt to Assets
0.02
0.06
0.23
0.25
0.25
0.24
0.24
0.23
Sources: SEC Filing
DISCOUNTED CASH
FLOW – BUILD UP
FCF BUILDUP
2013P
12/31/2013
1,674
35.5%
1,080
26,365
(996)
21,278
486
0
(1,623)
0
0
46,590
(15,066)
31,524
0
100.0%
31,524
Fiscal year end date
EBIT
tax rate
EBIAT
Depreciation
Accounts receivable
Inventory
Other current assets
Other assets
Accounts payable
Other current liabilities
Other noncurrent liabilities
Unlevered Cash from Operations
Capital expenditures
Unlevered Free Cash Flows
Period
Discount factor
Present Value of Free Cash Flows
Terminal Value
Perpetuity approach
FCF in last forecast period (t)
FCFt+1
Long term growth rate (g)
Terminal value
Present value of terminal value
Enterprise value
Net Debt
Convertible Notes, net
Operating Leases & Purchase Obligations
2012
Revolver
Cash
Net debt
Valuation
Enterprise value
Net debt
Equity value
Diluted Shares Outstanding
Equity value per share
% premium / (discount) over market
share price
Source: Student Research
34,845
36,483
4.7%
872,503
620,801
708,550
107,133
63,000
0
(550)
169,583
Perpetuity
708,549.7
118,130.0
590,419.7
78,378.0
$7.53
(17.0%)
2014P
12/31/2014
35,488
35.5%
22,890
28,391
(5,524)
(11,827)
0
(20,000)
6,817
0
0
20,747
(17,744)
3,003
1
91.8%
2,758
Projected
2015P
12/31/2015
36,908
35.5%
23,805
35,754
(8,517)
(8,091)
0
0
4,791
0
0
47,742
(23,067)
24,675
2
84.4%
20,814
2016P
12/31/2016
38,384
35.5%
24,758
44,621
(4,244)
(8,415)
0
(20,000)
2,214
0
0
38,934
(28,788)
10,146
3
77.5%
7,860
2017P
12/31/2017
39,919
35.5%
25,748
59,879
(4,414)
(8,752)
0
0
2,303
0
0
74,764
(39,919)
34,845
4
71.2%
24,793
2012 NET INCOME
DISAGGREATION
Net Income
($131.4 M)
Operating Income
Nonoperating Expense
($116.2 M)
Gross Margin
Sales
$834.1 M
($10.3 M)
Operating Expense
$248.2 M
Income Tax Expense
($364.4 M)
Nonoperating Income
$3.7 M
($4.9 M)
Nonoperating Expene
($14 M)
Cost of Sales
($585.9 M)
Sources: SEC Filing, Student Research
COMPARABLE KEY
RATIOS
Figure 1: Comparable Company
Analysis
Metrics
Callaway
LTM Gross Margin
NTM Long-term EPS Growth
NTM TEV/Forward EBITDA
LTM EBITDA Margin
LTM EBIT Margin
1-Year Revenue Growth
37.20%
11.50%
13.40x
0.00%
-3.20%
-3.74%
Median of Comparable Set
35.10%
10.00%
11.60x
6.90%
5.60%
7.37%
Source: Capital IQ
Company
Gross
Margin
EBITDA Margin
EBIT Margin
Total Revenues,
1 Yr Growth
EPS Growth
Rate
ACAT
22.50%
10.90%
9.20%
6.92%
13.33%
HEAD
40.30%
5.50%
2.80%
-2.78%
-
JOUT
40.50%
8.30%
6.30%
3.44%
10.00%
MPX
17.00%
5.30%
4.90%
13.96%
10.00%
TSE: 8022
39.90%
3.50%
1.80%
7.81%
8.82%
PII
30.30%
17.20%
15.00%
16.53%
16.58%
ELY
37.20%
0.00%
-3.20%
-3.74%
11.50%
1st Quartile
24.45%
5.35%
3.33%
4.31%
10.00%
Median
35.10%
6.90%
5.60%
7.37%
10.00%
3rd Quartile
40.20%
10.25%
8.48%
12.42%
13.33%
Figure 2: Comparable Company Key Ratios
Source: Capital IQ
SENSITIVITY ANALYSIS
Resources: Student Research
STOCK PRICE TIMELINE
Sources: Yahoo Finance, Google Finance
INVESTMENT RISK
CHART
Sources: SEC Filing, Student Research
SALES BREAKDOWN
Figure 1: 2012 Sales Breakdown
by Product
Figure 2: Sales Breakdown By
Country
Other
10%
Golf Ball
17%
Europe
15%
Japan
20%
Rest of
Asia
10%
Softgood
15%
Hardgood
68%
Source: Callaway
America
45%
Source: Callaway
Figure 2: 2012 Sales
Breakdown by Region
Sources: SEC Filing, Student Research
SALES BREAKDOWN
Sources: SEC Filing
Sources: SEC Filing, Student Research
INDEX OF CONSUMER
SENTIMENT
Sources: University of Michigan
PRO FORMA FINANCIAL
RATIOS
FINANCIAL RATIOS
2010A
2011A
2012A
2013P
2014P
2015P
2016P
2017P
Current Ratio
3.10
2.50
2.40
2.33
2.30
2.40
2.43
2.60
Quick Ratio
1.14
0.95
0.89
0.94
0.89
0.99
0.99
1.13
CFO to Current Liabilities
0.06
0.06
(0.18)
0.22
0.14
0.28
0.22
0.42
Asset Turnover
1.10
1.22
1.31
1.37
1.40
1.42
1.45
1.47
Working Capital Turnover
2.63
2.86
3.50
3.83
4.14
4.04
3.93
3.76
Accounts Receivable
Turnover
6.80
6.81
8.07
9.14
9.36
9.06
8.87
8.87
Receivable Collections
Period (DSO)
53.68
53.59
45.24
39.93
39.01
40.29
41.17
41.17
Inventory Turnover
2.47
2.29
2.63
2.56
2.71
2.68
2.68
2.68
147.77
159.16
138.55
142.59
134.65
136.03
136.03
136.03
17.54
13.24
13.38
11.07
11.54
10.61
10.35
10.35
20.81
27.57
27.28
32.96
31.63
34.42
35.28
35.28
180.64
185.18
156.51
149.56
142.02
141.91
141.92
141.92
40.0%
LIQUIDITY
EFFICIENCY
Inventory on-hand period
(DIO)
Accounts Payable Turnover
Days Payable Period (DPO)
Cash Conversion Cycle
PROFITABILITY
Gross Profit Margin
37.8%
35.1%
29.8%
38.5%
40.0%
40.0%
40.2%
EBIT Margin
-3.6%
-10.0%
-13.5%
0.6%
4.4%
4.4%
4.4%
4.4%
EBITDA Margin
0.6%
-5.6%
-9.4%
3.8%
7.6%
8.3%
9.0%
10.4%
Net Gain Margin
-1.9%
-19.4%
-14.7%
-0.6%
2.9%
2.5%
2.5%
2.5%
Return on Equity (ROE)
-2.7%
-28.8%
-29.7%
-1.6%
8.4%
7.4%
7.4%
7.5%
Return on Assets (ROA)
-1.9%
-21.5%
-18.5%
-5.2%
3.2%
2.8%
2.9%
2.9%
Debt to Assets
0.02
0.06
0.23
0.25
0.25
0.24
0.24
0.23
Debt to Equity
0.02
0.08
0.37
0.50
0.51
0.49
0.47
0.45
(40.94)
(54.79)
(20.41)
1.25
9.30
9.65
10.01
10.39
0.06
(0.67)
(0.31)
0.05
0.17
0.18
0.21
0.26
SOLVENCY
Times Interest Earned
Solvency Ratio
Sources: SEC Filing, Student Research
PRO FORMA INCOME
STATEMENT
INCOME STATEMENT
In Millions
ACTUAL
PROJECTED
2013
2010A
2011A
2012A
Q1
Q2
Q3
Q4
2013P
2014P
2015P
2016P
2017P
Gross profit
967.7
(602.2)
365.5
886.5
(575.2)
311.3
834.1
(585.9)
248.2
287.8
(157.3)
130.4
249.6
(154.0)
95.7
178.2
(118.8)
59.4
121.4
(84.6)
36.7
837.0
(514.7)
322.2
887.2
(532.3)
354.9
922.7
(553.6)
369.1
959.6
(575.8)
383.8
998.0
(598.8)
399.2
Operating Expenses
(392.1)
(392.4)
(364.4)
(90.3)
(84.2)
(76.4)
(69.7)
(320.6)
(319.4)
(332.2)
(345.5)
(359.3)
Operating Profit (loss)
(26.6)
(81.1)
(116.2)
40.1
11.5
(17.0)
(32.9)
1.7
35.5
36.9
38.4
39.9
Net sales
Cost of sales
Interest income
2.9
0.5
0.6
0.0
0.0
0.0
0.4
0.4
0.4
0.5
0.5
0.6
Interest expense
Other income
(expense), net
(0.8)
(1.6)
(5.5)
0.0
0.0
0.0
(4.2)
(4.2)
(4.2)
(4.2)
(4.2)
(4.2)
Pretax Profit (loss)
(Income taxes) / tax
benefit
(11.0)
(8.1)
3.2
4.0
0.0
(3.1)
2.2
3.2
3.2
3.2
3.2
3.2
(35.6)
(90.3)
(118.0)
44.1
11.5
(20.1)
(34.5)
1.1
34.9
36.3
37.8
39.5
16.8
(81.6)
(4.9)
(2.5)
(1.4)
(1.0)
(1.0)
(6.0)
(9.5)
(12.9)
(13.4)
(14.0)
Net Gain (loss)
Dividends on
convertible preferred
stock
Net Income (loss)
allocable to common
shareholders
(18.8)
(171.8)
(122.9)
41.7
10.1
(21.2)
(35.5)
(4.9)
25.4
23.4
24.4
25.4
(10.5)
(10.5)
(8.4)
(0.8)
(0.8)
(1.8)
(1.8)
(5.1)
0.0
0.0
0.0
0.0
(29.3)
(182.3)
(131.4)
40.9
9.3
(22.9)
(37.3)
(10.0)
25.4
23.4
24.4
25.4
Depreciation and
amortization Expense
(40.9)
(38.6)
(34.4)
(7.0)
(13.4)
(19.7)
(26.4)
(26.4)
(28.4)
(35.8)
(44.6)
(59.9)
6.2
(50.0)
(78.1)
51.1
24.9
(0.4)
(3.9)
31.6
67.5
76.3
86.7
103.5
63.9
64.6
67.1
92.2
86.3
72.6
78.4
83.7
78.4
78.4
78.4
78.4
(0.46)
(2.82)
(1.96)
0.44
0.11
(0.32)
(0.48)
(0.12)
0.32
0.30
0.31
0.32
Revenue growth
1.8%
(8.4%)
(5.9%)
0.4%
6.0%
4.0%
4.0%
4.0%
COGS margin
Operating expenses
margin
62.2%
64.9%
70.2%
61.5%
60.0%
60.0%
60.0%
60.0%
40.5%
44.3%
43.7%
38.3%
36.0%
36.0%
36.0%
36.0%
N/M
N/M
N/M
35.5%
35.5%
35.5%
35.5%
35.5%
EBITDA
Diluted weightedaverage shares
outstanding
GAAP diluted earnings
per share
Tax rate
Sources: SEC Filing, Student Research
PRO FORMA BALANCE
SHEET
BALANCE SHEET
In millions...
ACTUAL
PROJECTED
2010A
55.0
144.6
268.6
75.5
2011A 2012A 2013P 2014P 2015P 2016P 2017P
43.0
52.0
57.8
51.3
63.6
61.4
83.9
115.7
91.1
92.1
97.6 106.1 110.4 114.8
233.1 211.7 190.5 202.3 210.4 218.8 227.5
27.6
32.2
31.7
31.7
31.7
31.7
31.7
129.6
117.1
89.1
77.8
67.1
54.5
38.6
18.7
202.7
876.0
190.6
727.1
161.5
637.6
161.5
611.3
181.5
631.5
181.5
647.8
201.5
662.4
201.5
678.1
Accounts Payable
Accrued Expenses
Other current liabilities
Other long-term liabilities
Revolver
Total Liabilities
42.5
96.8
35.9
14.0
0.0
189.1
39.0
90.2
38.6
46.5
0.0
214.3
45.4
83.6
32.5
154.4
0.0
315.9
43.8
83.6
32.5
154.4
0.0
314.3
50.6
83.6
32.5
154.4
0.0
321.1
55.4
83.6
32.5
154.4
0.0
325.9
57.6
83.6
32.5
154.4
0.0
328.1
59.9
83.6
32.5
154.4
0.0
330.4
Convertible Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Other Equity-related
Total Shareholders’ equity
Non-controlling interest in
consolidated entity
Total Equity
Assets - Liabilities - Equity
0.01
0.7
264.2
433.0
(13.6)
684.3
0.01
0.7
265.1
247.9
(3.7)
510.0
0.00
0.7
204.5
113.8
(0.1)
319.0
0.0
0.8
204.5
91.8
(0.1)
297.0
0.0
0.8
204.5
105.2
(0.1)
310.4
0.0
0.8
204.5
116.6
(0.1)
321.9
0.0
0.8
204.5
129.0
(0.1)
334.3
0.0
0.8
204.5
142.5
(0.1)
347.7
2.6
2.9
2.7
0.0
0.0
0.0
0.0
0.0
686.9
0.0
512.8
0.0
321.7
0.0
297.0
0.0
310.4
0.0
321.9
0.0
334.3
0.0
347.7
0.0
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Property, plant and
equipment, net
Other assets
Total Assets
Sources: SEC Filing, Student Research
PRO FORMA CASH
FLOW STATEMENT
CASH FLOW STATEMENT
In millions…
Net income
Depreciation
Accounts receivable
Inventory
Other current assets
Other assets
Accounts payable
Other current liabilities
Other non-current liabilities
Cash from operations activities
2013P
(10.0)
26.4
(1.0)
21.3
0.5
0.0
(1.6)
0.0
0.0
35.5
2014P
25.4
28.4
(5.5)
(11.8)
0.0
(20.0)
6.8
0.0
0.0
23.2
PROJECTED
2015P
23.4
35.8
(8.5)
(8.1)
0.0
0.0
4.8
0.0
0.0
47.4
2016P
24.4
44.6
(4.2)
(8.4)
0.0
(20.0)
2.2
0.0
0.0
38.6
2017P
25.4
59.9
(4.4)
(8.8)
0.0
0.0
2.3
0.0
0.0
74.5
Capital expenditures
Cash from investing activities
(15.1)
(15.1)
(17.7)
(17.7)
(23.1)
(23.1)
(28.8)
(28.8)
(39.9)
(39.9)
Dividends
Revolver
Common Stock
Additional paid in capital
Convertible preferred stock
Other equity-related
Cash from financing activities
(12.0)
0.0
0.1
0.0
(0.0)
(2.7)
(14.7)
(12.0)
0.0
0.0
0.0
0.0
0.0
(12.0)
(12.0)
0.0
0.0
0.0
0.0
0.0
(12.0)
(12.0)
0.0
0.0
0.0
0.0
0.0
(12.0)
(12.0)
0.0
0.0
0.0
0.0
0.0
(12.0)
5.8
(6.5)
12.3
(2.2)
22.5
Net change in cash during period
Sources: SEC Filing, Student Research
LUXURY GOOD MARKET
VS GOLF INDUSTRY
Luxury Goods Market vs Golf Market
15
10
% Growth Rate
5
0
-5
-10
-15
-20
2008
2009
2010
2011
2012
US Golf Industry Growth %
-9
-11
0
0
9
Global Luxury Good Market
Growth %
-2
-8
13
11
10
US Consumer Spending on Golf
Equiment Growht %
-6
-16
9
3
1
Sources: SEC Filing, Student Research
DCF: KEY ASSUMPTIONS
PROJECTED
Operating assumptions
2013P
2014P
2015P
2016P
2017P
0.4%
6.0%
4.0%
4.0%
4.0%
COGS margin
61.5%
60.0%
60.0%
60.0%
60.0%
Operating expenses margin
38.3%
36.0%
36.0%
36.0%
36.0%
Tax rate
35.5%
35.5%
35.5%
35.5%
35.5%
AR as % of sales
11.0%
11.0%
11.5%
11.5%
11.5%
Inventory as % of COGS
37.0%
38.0%
38.0%
38.0%
38.0%
8.5%
9.5%
10.0%
10.0%
10.0%
1.8%
2.0%
2.5%
3.0%
4.0%
185.0%
160.0%
155.0%
155.0%
150.0%
0.5%
0.4%
0.4%
0.4%
0.4%
28000.0
28000.0
28000.0
28000.0
28000.0
4.5%
4.5%
4.5%
4.5%
4.5%
0.8%
0.8%
0.8%
0.8%
0.8%
Revenue growth
Working capital assumptions
AP as % of COGS
Fixed asset assumptions
Capital expenditures as % of revenue
Depreciation / Capital expenditures ratio
Capital structure assumptions
Dividend payout ratio
Minimum cash desired
Debt assumptions
Interest rate
Cash assumptions
Interest rate
CASH FLOW OUTLOOK
2012
Cash Flow Outlook Improving
Operating
Investing
Financing
(28.8)
5.5
32.1
• 18.4 CapEx Spending
• 26.9 M from Asset
Sales
• 122.9 Net
Loss from
Operations
Projected Cash Flow
From
2013P
2014P
2015P
2016P
2017P
Operating Activities
35.5
23.2
47.4
38.6
74.5
Investing Activities
(15.5)
(17.7)
(23.1)
(28.8)
Financing Activities
(14.7)
(12.0)
(12.0)
5.8
(6.5)
12.3
Net Increase
(decrease)
• 46.8 M Proceeds from
Convertible Notes
• 11 M Dividends Paid
• Positive Future Net
Income
(39.9) • Increasing CapEx
Spending
(12.0) (12.0)
(2.2)
22.5 • Steady Dividend
Maintained
Sources: SEC Filing