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Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 31, 2011	Jan. 31, 2012	Jun. 30, 2011
Document Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Trading Symbol	ELY
Entity Registrant Name	CALLAWAY GOLF CO
Entity Central Index Key	0000837465
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		65,018,357
Entity Public Float			$ 400,693,090

CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands

Dec. 31, 2011

Dec. 31, 2010

Current assets:

Cash and cash equivalents

$ 43,023

$ 55,043

Accounts receivable, net

115,673

144,643

Inventories

233,070

268,591

Deferred taxes, net

4,029

23,514

Income taxes receivable

3,654

10,235

Other current assets

19,880

41,703

Total current assets

419,329

543,729

Property, plant and equipment, net

117,147

129,601

Intangible assets, net

121,935

131,327

Goodwill

29,203

30,630

Deferred taxes, net

1,386

3,786

Other assets

38,112

36,939

Assets, Total

727,112

876,012

Current liabilities:

Accounts payable and accrued expenses

129,193

139,312

Accrued employee compensation and benefits

23,785

26,456

Accrued warranty expense

8,140

8,427

Deferred taxes

4,108

Income tax liability

2,558

944

Total current liabilities

167,784

175,166

Long-term liabilities:

Income taxes payable

8,115

8,554

Deferred taxes, net

31,429

1,376

Long-term incentive compensation and other

6,970

4,037

Commitments and contingencies (Note 17)

Shareholders' equity:

Preferred stock, $.01 par value, 3,000,000 shares authorized, 1,400,000 shares issued and outstanding at December 31, 2011 and 2010, respectively

Common stock, $.01 par value, 240,000,000 shares authorized, 66,340,695 shares and 66,317,049 shares issued at December 31, 2011 and 2010, respectively

663

Additional paid-in capital

265,067

264,235

Retained earnings

247,941

432,977

Accumulated other comprehensive income

14,071

13,564

Less: Grantor Stock Trust held at market value, 0 shares and 291,341 shares at December 31, 2011 and 2010, respectively

(2,351)

Less: Common stock held in treasury, at cost, 1,453,819 shares and 1,910,646 shares at December 31, 2011 and 2010, respectively

(17,800)

(24,835)

Total Callaway Golf Company shareholders' equity

509,956

684,267

Non-controlling interest in consolidated entity (Note 6)

2,858

2,612

Total shareholders' equity

512,814

686,879

^[1]

Total liabilities and shareholders' equity

$ 727,112

$ 876,012

[1]	As corrected for the deferred tax adjustment discussed in Note 16.

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2011	Dec. 31, 2010
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	3,000,000	3,000,000
Preferred stock, shares issued	1,400,000	1,400,000
Preferred stock, shares outstanding	1,400,000	1,400,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	240,000,000	240,000,000
Common stock, shares issued	66,340,695	66,317,049
Less: Grantor Stock Trust held at market value, shares	0	291,341
Less: Common stock held in treasury, shares	1,453,819	1,910,646

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Net sales	$ 886,528	$ 967,656	$ 950,799
Cost of sales	575,226	602,160	607,036
Gross profit	311,302	365,496	343,763
Selling expenses	265,325	257,285	260,597
General and administrative expenses	92,756	98,431	81,487
Research and development expenses	34,309	36,383	32,213
Total operating expenses	392,390	392,099	374,297
Loss from operations	(81,088)	(26,603)	(30,534)
Interest income	546	2,886	1,807
Interest expense	(1,618)	(848)	(1,754)
Other income (expense), net	(8,101)	(10,997)	878
Loss before income taxes	(90,261)	(35,562)	(29,603)
Income tax provision (benefit)	81,559	(16,758)	(14,343)
Net loss	(171,820)	(18,804)	(15,260)
Dividends on convertible preferred stock	10,500	10,500	5,688
Net loss allocable to common shareholders	$ (182,320)	$ (29,304)	$ (20,948)
Loss per common share:
Basic	$ (2.82)	$ (0.46)	$ (0.33)
Diluted	$ (2.82)	$ (0.46)	$ (0.33)
Weighted-average common shares outstanding:
Basic	64,601	63,902	63,176
Diluted	64,601	63,902	63,176

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Cash flows from operating activities:
Net loss	$ (171,820)	$ (18,804)	$ (15,260)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	38,636	40,949	40,748
Impairment charge	6,533	7,547
Deferred taxes	55,930	(3,788)	3,424
Non-cash share-based compensation	9,570	9,588	8,756
(Gain) loss on disposal of long-lived assets	(7,491)	177	(594)
Changes in assets and liabilities:
Accounts receivable, net	28,100	(2,096)	(11,567)
Inventories	36,460	(38,824)	47,415
Other assets	20,599	(9,896)	8,380
Accounts payable and accrued expenses	(12,613)	13,012	(19,713)
Accrued employee compensation and benefits	(4,187)	2,595	(5,179)
Accrued warranty expense	(287)	(1,022)	(2,165)
Income taxes receivable and payable	7,653	8,356	(6,567)
Other liabilities	3,015	1,838	(4,807)
Net cash provided by operating activities	10,098	9,632	42,871
Cash flows from investing activities:
Capital expenditures	(28,931)	(22,216)	(38,845)
Proceeds from sales of property and equipment	19,371
Other investing activities		(2,581)	166
Net cash used in investing activities	(9,560)	(24,797)	(38,679)
Cash flows from financing activities:
Issuance of common stock	2,195	2,954	2,562
Issuance of preferred stock			140,000
Equity issuance costs		(54)	(6,031)
Dividends paid, net	(13,093)	(13,067)	(11,590)
Borrowings/(payments) on credit facilities, net			(90,000)
Credit facility origination fees	(2,467)
Other financing activities	80	(650)	172
Net cash provided by (used in) financing activities	(13,285)	(10,817)	35,113
Effect of exchange rate changes on cash and cash equivalents	727	2,711	672
Net increase (decrease) in cash and cash equivalents	(12,020)	(23,271)	39,977
Cash and cash equivalents at beginning of year	55,043	78,314	38,337
Cash and cash equivalents at end of year	43,023	55,043	78,314
Supplemental disclosures:
Cash paid for interest and fees	3,744	568	1,563
Cash received for income taxes	3,473	13,849	8,974
Dividends payable	$ 438	$ 438	$ 438

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) - USD ($)
shares in Thousands, $ in Thousands

Total

Preferred Stock

Common Stock

Additional Paid-in Capital

Unearned Compensation

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Grantor Stock Trust

Treasury stock

Non-controlling Interest

Comprehensive Income /(Loss)

Beginning Balance (in shares) (Scenario, Previously Reported) at Dec. 31, 2008

66,276

(1,769)

Beginning Balance (in shares) at Dec. 31, 2008

^[1]

66,276

(1,769)

Beginning Balance (Scenario, Previously Reported) at Dec. 31, 2008

$ 580,368

$ 663

$ 102,329

$ (279)

$ 518,851

$ (6,376)

$ (13,383)

$ (23,650)

$ 2,213

$ 40,896

Beginning Balance (Restatement Adjustment)

(8,967)

461

(9,428)

Beginning Balance at Dec. 31, 2008

^[1]

571,401

$ 663

102,790

(279)

509,423

(6,376)

(13,383)

$ (23,650)

2,213

40,896

Tax deficit from exercise of stock options and compensatory stock

(237)

Acquisition of Treasury Stock (in shares)

(54)

Acquisition of Treasury Stock

(460)

$ (460)

Compensatory stock and stock options (in shares)

Compensatory stock and stock options

7,939

7,338

$ 279

322

Issuance of Preferred Stock (in shares)

1,400

Issuance of Preferred Stock

151,129

$ 14

151,115

Change in redemption value of Preferred Stock

(17,160)

Employee stock purchase plan

2,562

(411)

2,973

Stock dividends

(24)

Cash dividends

(12,028)

Adjustment of Grantor Stock Trust shares to market

(2,674)

2,674

Equity adjustment from foreign currency translation

12,616

Change in non-controlling interest

(64)

Net loss

(14,785)

(15,260)

475

(15,260)

Ending Balance (in shares) at Dec. 31, 2009

^[1]

1,400

66,296

(1,823)

Ending Balance at Dec. 31, 2009

^[1]

700,915

$ 14

$ 663

257,947

464,951

6,240

(7,414)

$ (24,110)

2,624

(2,644)

Exercise of stock options

479

(59)

538

Tax deficit from exercise of stock options and compensatory stock

(564)

Acquisition of Treasury Stock (in shares)

(88)

Acquisition of Treasury Stock

(725)

$ (725)

Compensatory stock and stock options (in shares)

Compensatory stock and stock options

8,912

7,341

1,571

Issuance of Preferred Stock

(54)

Employee stock purchase plan

2,475

(412)

2,887

Stock dividends

(103)

Cash dividends

(13,067)

Adjustment of Grantor Stock Trust shares to market

(27)

Equity adjustment from foreign currency translation

7,324

Change in non-controlling interest

(358)

Net loss

(18,458)

(18,804)

346

(18,804)

Ending Balance (in shares) at Dec. 31, 2010

^[1]

1,400

66,317

(1,911)

Ending Balance at Dec. 31, 2010

^[1]

686,879

$ 14

$ 663

264,235

432,977

13,564

(2,351)

$ (24,835)

2,612

(11,480)

Tax deficit from exercise of stock options and compensatory stock

(83)

Acquisition of Treasury Stock (in shares)

(227)

Acquisition of Treasury Stock

(1,587)

$ (1,587)

Compensatory stock and stock options (in shares)

394

Compensatory stock and stock options

9,570

2,889

1,655

$ 5,026

Employee stock purchase plan (in shares)

290

Employee stock purchase plan

2,195

(2,035)

634

$ 3,596

Stock dividends

123

(123)

Cash dividends

(13,093)

Adjustment of Grantor Stock Trust shares to market

(62)

$ 62

Equity adjustment from foreign currency translation

507

Change in non-controlling interest

(341)

Net loss

(171,233)

(171,820)

587

(171,820)

Ending Balance (in shares) at Dec. 31, 2011

1,400

66,341

(1,454)

Ending Balance at Dec. 31, 2011

$ 512,814

$ 14

$ 663

$ 265,067

$ 247,941

$ 14,071

$ (17,800)

$ 2,858

$ (171,313)

[1]	As corrected for the deferred tax adjustment discussed in Note 16.

The Company

12 Months Ended

Dec. 31, 2011

The Company

Note 1. The Company

Callaway Golf Company (“Callaway Golf” or the “Company”), a Delaware corporation, together with its subsidiaries, designs, manufactures and sells high quality golf clubs (drivers, fairway woods, hybrids, irons, wedges and putters) and golf balls. The Company also sells golf accessories such as golf bags, golf gloves, golf footwear, GPS on-course range finders, golf and lifestyle apparel, golf headwear, eyewear, golf towels and golf umbrellas. The Company generally sells its products to golf retailers (including pro shops at golf courses and off-course retailers), sporting goods retailers and mass merchants, directly and through its wholly-owned subsidiaries, and to third-party distributors in the United States and in over 100 countries around the world. The Company also sells pre-owned Callaway Golf products through its website, www.callawaygolfpreowned.com and sells new Callaway Golf products through its website www.shop.callawaygolf.com. In addition, the Company licenses its name for golf apparel, travel gear and other golf accessories.

Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Significant Accounting Policies

Note 2. Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Examples of such estimates include provisions for warranty, uncollectible accounts receivable, inventory obsolescence, sales returns, tax contingencies, estimates on the valuation of share-based awards and recoverability of long-lived assets and investments. Actual results may materially differ from these estimates. On an ongoing basis, the Company reviews its estimates to ensure that these estimates appropriately reflect changes in its business or as new information becomes available.

Recent Accounting Standards

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU No. 2011-11 will be applied retrospectively and is effective for annual and interim reporting periods beginning on or after January 1, 2013. The adoption of this amendment will not have a material impact on the Company’s disclosures to the consolidated financial statements.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” This ASU is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, “Intangibles-Goodwill and Other.” The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Based on the Company’s evaluation of this ASU, the adoption of this amendment will not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”. This ASU amends the FASB Accounting Standards Codification (Codification) to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. In addition, in December 2011, the FASB issued an amendment to ASU No. 2011-05 that defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. ASU 2011-05 will be applied retrospectively, and is effective for fiscal years and interim periods within those years beginning after December 15, 2011. Based on the Company’s evaluation of this ASU, the adoption of this amendment will only impact the presentation of comprehensive income (loss) on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements.” This ASU represents the converged guidance of the FASB and the International Accounting Standards Board (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards. ASU No. 2011-04 will be applied prospectively and is effective for interim and annual periods beginning after December 15, 2011. Based on the Company’s evaluation of this ASU, the adoption of this amendment will not have a material impact on the Company’s consolidated financial statements.

Revenue Recognition

Sales are recognized in accordance with Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition,” as products are shipped to customers, net of an allowance for sales returns and sales programs. The criteria for recognition of revenue are met when persuasive evidence that an arrangement exists and both title and risk of loss have passed to the customer, the price is fixed or determinable and collectability is reasonably assured. Sales returns are estimated based upon historical returns, current economic trends, changes in customer demands and sell-through of products. The Company also records estimated reductions to revenue for sales programs such as incentive offerings. Sales program accruals are estimated based upon the attributes of the sales program, management’s forecast of future product demand, and historical customer participation in similar programs.

Revenues from gift cards are deferred and recognized when the cards are redeemed. In addition, the Company recognizes revenue from unredeemed gift cards when the likelihood of redemption becomes remote and under circumstances that comply with any applicable state escheatment laws. The Company’s gift cards have no expiration. To determine when redemption is remote, the Company analyzes an aging of unredeemed cards (based on the date the card was last used or the activation date if the card has never been used) and compares that information with historical redemption trends. The deferred revenue associated with outstanding gift cards decreased from $3,247,000 at December 31, 2010 to $1,988,000 at December 31, 2011.

Revenues from course credits in connection with the use of uPro GPS on-course range finders are deferred when purchased and recognized when customers download the course credits for usage. Deferred revenue associated with unused course credits was $2,945,000 and $2,898,000 at December 31, 2011 and 2010, respectively.

Amounts billed to customers for shipping and handling are included in net sales and costs incurred related to shipping and handling are included in cost of sales.

Royalty income is recorded in net sales as underlying product sales occur, subject to certain minimums, in accordance with the related licensing arrangements. The Company recognized royalty income under its various licensing agreements of $6,219,000, $5,831,000 and $5,634,000 during 2011, 2010 and 2009, respectively.

Warranty Policy

The Company has a stated two-year warranty policy for its golf clubs. The Company’s policy is to accrue the estimated cost of satisfying future warranty claims at the time the sale is recorded. In estimating its future warranty obligations, the Company considers various relevant factors, including the Company’s stated warranty policies and practices, the historical frequency of claims, and the cost to replace or repair its products under warranty. The decrease in the estimated future warranty obligation is primarily due to a decline in sales and in warranty return rates primarily due to improved durability of newer products combined with an increase in customer paid repairs. The following table provides a reconciliation of the activity related to the Company’s reserve for warranty expense:


	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Beginning balance	$	8,427		$	9,449		$	11,614
Provision		8,614			8,439			8,544
Claims paid/costs incurred		(8,901	)		(9,461	)		(10,709	)

Ending balance	$	8,140		$	8,427		$	9,449

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, trade receivables and payables, foreign currency forward contracts and put and call option contracts (see Note 11) and its credit facilities (see Note 10). The carrying amounts of these instruments approximate fair value because of their short-term maturities and variable interest rates.

Advertising Costs

The Company advertises primarily through television and print media. The Company’s policy is to expense advertising costs, including production costs, as incurred. Advertising expenses for 2011, 2010 and 2009 were $53,051,000, $48,432,000 and $47,366,000, respectively.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs for 2011, 2010 and 2009 were $34,309,000, $36,383,000 and $32,213,000 respectively.

Foreign Currency Translation and Transactions

The Company’s foreign subsidiaries utilize their local currency as their functional currency. The accounts of these foreign subsidiaries have been translated into United States dollars using the current exchange rate at the balance sheet date for assets and liabilities and at the average exchange rate for the period for revenues and expenses. Cumulative translation gains or losses are recorded as accumulated other comprehensive income in shareholders’ equity. Gains or losses resulting from transactions that are made in a currency different from the functional currency are recognized in earnings as they occur. The Company recorded net foreign currency transaction gains of $708,000, $6,926,000 and $7,112,000 in 2011, 2010 and 2009, respectively.

Derivatives and Hedging

The Company from time to time uses derivative financial instruments to manage its exposure to foreign exchange rates. The derivative instruments are accounted for pursuant to ASC Topic 815, “Derivatives and Hedging,” which requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet, measure those instruments at fair value and recognize changes in the fair value of derivatives in earnings in the period of change unless the derivative qualifies as an effective hedge that offsets certain exposures. As of December 31, 2011, the Company had derivative financial instruments in the form of foreign currency forward contracts and put and call option contracts that were not designated as hedging instruments in accordance with ASC Topic 815.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments purchased with original maturities of three months or less.

Allowance for Doubtful Accounts

The Company maintains an allowance for estimated losses resulting from the failure of its customers to make required payments. An estimate of uncollectable amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, the customer’s financial condition and current economic trends, all of which are subject to change. Actual uncollected amounts have historically been consistent with the Company’s expectations.

Inventories

Inventories are valued at the lower of cost or fair market value. Cost is determined using the first-in, first-out (FIFO) method. The inventory balance, which includes material, labor and manufacturing overhead costs, is recorded net of an estimated allowance for obsolete or unmarketable inventory. The estimated allowance for obsolete or unmarketable inventory is based upon current inventory levels, sales trends and historical experience as well as management’s estimates of market conditions and forecasts of future product demand, all of which are subject to change.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives as follows:


Buildings and improvements			10-30 years
Machinery and equipment			5-10 years
Furniture, computers and equipment			3-5 years
Production molds			2-5 years

Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values, change capacities or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income (loss). Construction in-process consists primarily of costs associated with building improvements, machinery and equipment that have not yet been placed into service, unfinished molds as well as in-process internally developed software.

In accordance with ASC Topic 350-40, “Internal-Use Software,” the Company capitalizes certain costs incurred in connection with developing or obtaining internal use software. Costs incurred in the preliminary project stage are expensed. All direct external costs incurred to develop internal-use software during the development stage are capitalized and amortized using the straight-line method over the remaining estimated useful lives. Costs such as maintenance and training are expensed as incurred.

Long-Lived Assets

In accordance with ASC Topic 360-10-05, “Impairment or Disposal of Long-Lived Assets”, the Company assesses potential impairments of its long-lived assets whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. An impairment loss would be recognized when the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group.

Goodwill and Intangible Assets

Goodwill and intangible assets consist of goodwill, trade names, trademarks, service marks, trade dress, patents and other intangible assets acquired during the acquisition of Odyssey Sports, Inc., the Top-Flite and Ben Hogan assets, FrogTrader, Inc., the Tour Golf Group assets, the uPlay, LLC assets and certain foreign distributors.

In accordance with ASC Topic 350, “Intangibles—Goodwill and Other,” goodwill and intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate that an impairment exists. The Company calculates impairment as the excess of the carrying value of goodwill and other indefinite-lived intangible assets over their estimated fair value. If the carrying value exceeds the estimate of fair value a write-down is recorded. To determine fair value, the Company uses its internal discounted cash flow estimates, quoted market prices, royalty rates when available and independent appraisals when appropriate.

Intangible assets that are determined to have definite lives are amortized over their estimated useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired in accordance with ASC Topic 360-10-05 discussed above. See Note 9 for further discussion of the Company’s goodwill and intangible assets.

Investments

The Company determines the appropriate classification of its investments at the time of acquisition and reevaluates such classification at each balance sheet date. Investments that do not have readily determinable fair values are stated at cost and are reported in other assets. The Company monitors investments for impairment in accordance with ASC Topic 325-35-2, “Impairment” and ASC Topic 320-35-17 through 35-35, “Scope of Impairment Guidance.” See Note 5 for further discussion of the Company’s investments.

Share-Based Compensation

The Company accounts for its share-based compensation arrangements in accordance with ASC Topic 718, “Compensation—Stock Compensation” (“ASC Topic 718”),” which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. ASC Topic 718 further requires a reduction in share-based compensation expense by an estimated forfeiture rate. The forfeiture rate used by the Company is based on historical forfeiture trends. If actual forfeiture rates are not consistent with the Company’s estimates, the Company may be required to increase or decrease compensation expenses in future periods.

The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options and stock appreciation rights (“SARs”) at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of stock options/SARs. The Company uses historical data among other information to estimate the expected price volatility, option/SAR life, and forfeiture rate. The Company uses forecasted dividends to estimate the expected dividend yield. The Company believes a forecasted calculation is more appropriate than using historical data since the amount of dividends paid have decreased beginning in 2009. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option/SAR. Compensation expense is recognized on a straight-line basis over the vesting period for stock options. Compensation expense for SARs is recognized on a straight-line basis over the vesting period based on an estimated fair value, which is remeasured each reporting period. Once vested, the SARs continue to be remeasured to fair value until they are exercised.

The Company records compensation expense for restricted stock awards and restricted stock units (collectively “restricted stock”) based on the estimated fair value of the award on the date of grant. The estimated fair value is determined based on the closing price of the Company’s common stock on the award date multiplied by the number of shares underlying the restricted stock awarded. Total compensation expense is recognized on a straight-line basis over the vesting period.

Phantom stock units (“PSUs”) are a form of share-based awards that are indexed to the Company’s stock and are settled in cash. As such, these awards are classified as liabilities. Because PSUs are settled in cash, compensation expense recognized over the vesting period will vary based on changes in fair value. Fair value is remeasured at the end of each interim reporting period through the award’s settlement date and is based on the closing price of the Company’s stock.

Income Taxes

Current income tax expense or benefit is the amount of income taxes expected to be payable or receivable for the current year. A deferred income tax asset or liability is established for the difference between the tax basis of an asset or liability computed pursuant to ASC Topic 740 and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. In accordance with the applicable accounting rules, the Company maintains a valuation allowance for a deferred tax asset when it deemed it to be more likely than not that some or all of the deferred tax asset will not be realized. In evaluating whether a valuation allowance is required under such rules, the Company considers all available positive and negative evidence, including prior operating results, the nature and reason for any losses, its forecast of future taxable income, and the dates on which any deferred tax assets are expected to expire. These assumptions require a significant amount of judgment, including estimates of future taxable income. These estimates are based on the Company’s best judgment at the time made based on current and projected circumstances and conditions. As a result of the Company’s evaluation during 2011, the Company recorded a $52,455,000 increase to income tax expense in order to establish a valuation allowance against its U.S. deferred tax assets. In addition, the Company has discontinued recognizing income tax benefits related to its U.S. net operating losses until it is determined that it is more likely than not that the Company will generate sufficient taxable income to realize the benefits from its U.S. deferred tax assets. For further information, see Note 16 “Income Taxes.”

Pursuant to ASC Topic 740-25-6, the Company is required to accrue for the estimated additional amount of taxes for uncertain tax positions if it is deemed to be more likely than not that the Company would be required to pay such additional taxes.

The Company is required to file federal and state income tax returns in the United States and various other income tax returns in foreign jurisdictions. The preparation of these income tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. The Company accrues an amount for its estimate of additional tax liability, including interest and penalties, for any uncertain tax positions taken or expected to be taken in an income tax return. The Company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available. Historically, additional taxes paid as a result of the resolution of the Company’s uncertain tax positions have not been materially different from the Company’s expectations. For further information, see Note 16 “Income Taxes.”

Other Income (Expense), Net

Other income (expense), net primarily includes gains and losses on foreign currency exchange contracts and foreign currency transactions. The components of other income (expense), net are as follows:


	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Foreign currency exchange contract losses, net	$	(8,861	)	$	(18,600	)	$	(7,594	)
Foreign currency transaction gains, net		708			6,926			7,112
Gains on deferred compensation plan assets		—			199			867
Other		52			478			493

	$	(8,101	)	$	(10,997	)	$	878

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income for the Company include net income and foreign currency translation adjustments. Since the Company has met the indefinite reversal criteria, it does not accrue income taxes on foreign currency translation adjustments. The total equity adjustment from foreign currency translation included in accumulated other comprehensive income was income of $14,071,000 and $13,564,000 as of December 31, 2011 and 2010, respectively.

Segment Information

The Company’s operating segments are organized on the basis of products and consist of Golf Clubs and Golf Balls. The Golf Clubs segment consists primarily of Callaway Golf and Top-Flite woods, hybrids, irons, wedges and putters as well as Odyssey putters, pre-owned clubs, GPS on-course range finders, other golf-related accessories and royalties from licensing of the Company’s trademarks and service marks. The Golf Balls segment consists primarily of Callaway Golf and Top-Flite golf balls that are designed, manufactured and sold by the Company. The Company also discloses information about geographic areas. This information is presented in Note 19.

Concentration of Credit Risk

The Company’s financial instruments that are subject to concentrations of credit risk consist primarily of cash equivalents, trade receivables and foreign currency exchange contracts.

The Company historically invests its excess cash in money market accounts and short-term U.S. government securities and has established guidelines relative to diversification and maturities in an effort to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.

The Company operates in the golf equipment industry and primarily sells its products to golf equipment retailers (including pro shops at golf courses and off-course retailers), sporting goods retailers and mass merchants, directly and through wholly-owned domestic and foreign subsidiaries, and to foreign distributors. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from these customers. The Company maintains reserves for estimated credit losses, which it considers adequate to cover any such losses. At December 31, 2011, no single customer in the United States represented over 10% of the Company’s outstanding accounts receivable balance. Managing customer-related credit risk is more difficult in regions outside of the United States. During 2011, approximately 53% of the Company’s net sales were made in regions outside of the United States, compared to 52% in 2010 and 50% in 2009. Prolonged unfavorable economic conditions in the United States or in the Company’s international markets could significantly increase the Company’s credit risk.

From time to time, the Company enters into foreign currency forward contracts and put or call options for the purpose of hedging foreign exchange rate exposures on existing or anticipated transactions. In the event of a failure to honor one of these contracts by one of the banks with which the Company has contracted, management believes any loss would be limited to the exchange rate differential from the time the contract was made until the time it was settled.

Restructuring Initiatives

12 Months Ended

Dec. 31, 2011

Restructuring Initiatives

Note 3. Restructuring Initiatives

Global Operations Strategy

In 2010, the Company began the implementation of its Global Operations Strategy Initiatives (“GOS Initiatives”), which targeted the restructuring and relocation of the Company’s manufacturing and distribution operations.

During the third quarter of 2010, as part of the Company’s GOS Initiatives, the Company announced the restructuring of its golf club and golf ball manufacturing and distribution operations. This restructuring, which is designed to add speed and flexibility to customer service demands, optimize efficiencies, and facilitate long-term gross margin improvements, includes the reorganization of the Company’s manufacturing and distribution centers located in Carlsbad, California, Toronto, Canada, and Chicopee, Massachusetts, the creation of third-party logistics sites in Dallas, Texas and Toronto, Canada, as well as the establishment of a new production facility in Monterrey, Mexico. This restructuring was completed in 2011. The Company intends to maintain limited manufacturing and distribution facilities in Carlsbad, California and Chicopee, Massachusetts.

As a result of this restructuring, the Company has recognized non-cash charges for the acceleration of depreciation on certain golf club and golf ball manufacturing equipment and cash charges related to severance benefits and transition costs, which consist primarily of consulting expenses, costs associated with redundancies during the start-up and training phase of the new production facility in Monterrey, Mexico, start-up costs associated with the establishment of third-party logistics sites, travel expenses, and costs associated with the transfer of inventory and equipment.

For the years ended December 31, 2011 and 2010, the Company recorded pre-tax charges of $24,680,000 and $14,816,000, respectively, in connection with this restructuring. Of these amounts, $20,590,000 and $12,827,000 were recognized within cost of goods sold in 2011 and 2010, respectively, and $4,090,000 and $1,989,000 were recognized within general and administrative expenses in 2011 and 2010, respectively. Of these total charges, $15,552,000 and $12,065,000 were absorbed by the Company’s golf clubs segment in 2011 and 2010, respectively, and $5,038,000 and $762,000 were absorbed by the Company’s golf balls segment in 2011 and 2010, respectively. Charges of $4,090,000 and $1,989,000 related to corporate general and administrative expenses were excluded from the Company’s operating segments in 2011 and 2010, respectively.

In the aggregate through December 31, 2011, the Company recognized total charges of $39,496,000 in connection with the GOS Initiatives, which are in-line with management’s estimates. As of December 31, 2011, the Company does not foresee additional future charges related to these initiatives.

Reorganization and Reinvestment Initiatives

In June 2011, the Company announced that it was implementing certain restructuring initiatives (the “Reorganization and Reinvestment Initiatives”) that involve (i) streamlining the Company’s organization to reduce costs, simplify internal processes, and increase focus on the Company’s consumers and retail partners, (ii) reorganizing the Company’s organizational structure to place greater emphasis on global brand management and improve the effectiveness of the Company’s key initiatives, and (iii) reinvesting in brand and demand creation initiatives to drive sales growth. The Company’s restructuring plan is expected to result in annualized pre-tax savings of approximately $50,000,000 with up to half of this savings to be reinvested into the Callaway brand and more effective demand creation initiatives. The majority of these savings and reinvestments are expected to be realized in 2012. During the year ended December 31, 2011, the Company recognized $16,329,000 of charges related to these initiatives, of which $1,251,000 and $15,078,000 were recognized in cost of goods sold and operating expenses, respectively. Total charges absorbed by the Company’s golf clubs and golf balls operating segments were $5,642,000 and $1,329,000 respectively. The Company expects future estimated charges of $1,000,000, to be settled in cash, in 2012.

The table below depicts the activity and liability balances recorded as part of the Company’s GOS Initiatives and Reorganization and Reinvestment Initiatives as well as the current estimated future charges relating to these initiatives (in thousands). Amounts payable as of December 31, 2011 and December 31, 2010 were included in accounts payable and accrued expenses, and accrued employee compensation and benefits on the accompanying consolidated balance sheets.


	GOS Initiatives									Reorganization and Reinvestment Initiatives
	Workforce Reductions			Transition Costs			Asset Write-offs			Workforce Reductions			Total
Charges to cost and expense	$	5,177		$	7,861		$	1,778		$	—		$	14,816
Non-cash items		—			—			(1,778	)		—			(1,778	)
Cash payments		(1,909	)		(7,477	)		—			—			(9,386	)

Restructuring payable balance, December 31, 2010		3,268			384			—			—			3,652
Charges to cost and expense		4,702			17,527			2,451			16,329			41,009
Non-cash items		—			—			(2,451	)		(2,126	)		(4,577	)
Cash payments		(6,751	)		(17,856	)		—			(8,846	)		(33,453	)

Restructuring payable balance, December 31, 2011	$	1,219		$	55		$	—		$	5,357		$	6,631

Total future estimated charges as of December 31, 2011	$	—		$	—		$	—		$	1,000		$	1,000

- Definition

The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled.

+ References + Details

Preferred Stock Offering

12 Months Ended

Dec. 31, 2011

Preferred Stock Offering

Note 4. Preferred Stock Offering

On June 15, 2009, the Company sold 1,400,000 shares of its 7.50% Series B Cumulative Perpetual Convertible Preferred Stock, $0.01 par value (the “preferred stock”). The Company received gross proceeds of $140,000,000 and incurred costs of $6,085,000, which were recorded as an offset to additional paid in capital in the consolidated statement of shareholders’ equity. The terms of the preferred stock provide for a liquidation preference of $100 per share and cumulative dividends from the date of original issue at a rate of 7.50% per annum (equal to an annual rate of $7.50 per share), subject to adjustment in certain circumstances. As of December 31, 2011, the liquidation preference would have been $140,438,000. Dividends on the preferred stock are payable quarterly in arrears subject to declaration by the Board of Directors and compliance with the Company’s line of credit and applicable law.

The preferred stock is generally convertible at any time at the holder’s option into common stock of the Company at an initial conversion rate of 14.1844 shares of Callaway Golf’s common stock per share of preferred stock, which is equivalent to an initial conversion price of approximately $7.05 per share. Based on the initial conversion rate, approximately 19,900,000 shares of common stock would be issuable upon conversion of all of the outstanding shares of preferred stock.

The Company may also elect, on or prior to June 15, 2012, to mandatorily convert some or all of the preferred stock into shares of the Company’s common stock if the closing price of the Company’s common stock has exceeded 150% of the conversion price for at least 20 of the 30 consecutive trading days ending the day before the Company sends the notice of mandatory conversion. If the Company elects to mandatorily convert any preferred stock, it will make an additional payment on the preferred stock equal to the aggregate amount of dividends that would have accrued and become payable through and including June 15, 2012, less any dividends already paid on the preferred stock. As of December 31, 2011, this amount would have been $4,813,000.

On or after June 20, 2012, the Company, at its option, may redeem the preferred stock, in whole or in part, at a price equal to 100% of the liquidation preference, plus all accrued and unpaid dividends. The preferred stock has no maturity date and has no voting rights prior to conversion into the Company’s common stock, except in limited circumstances.

Investments

12 Months Ended

Dec. 31, 2011

Investments

Note 5. Investments

Investment in TopGolf International, Inc.

The Company has an investment in TopGolf International, Inc. (“TopGolf”), the owner and operator of TopGolf entertainment centers. In connection with this investment, the Company owns $20,600,000 of preferred shares of TopGolf and has entered into a Preferred Partner Agreement with TopGolf in which the Company was granted preferred signage rights, rights as the preferred supplier of golf products used or offered for use at TopGolf facilities at prices no less than those paid by the Company’s customers, preferred retail positioning in the TopGolf retail stores, access to consumer information obtained by TopGolf, and other rights incidental to those listed.

The Company’s ownership interest in TopGolf is less than 20%. In addition, the Company does not have the ability to significantly influence the operating and financing activities and policies of TopGolf. Accordingly, the Company’s investment in TopGolf is accounted for at cost in accordance with ASC Topic 325, “Investments—Other,” and is included in other long-term assets in the accompanying consolidated balance sheets as of December 31, 2011 and December 31, 2010.

Non-Controlling Interests

12 Months Ended

Dec. 31, 2011

Non-Controlling Interests

Note 6. Non-Controlling Interests

Investment in Qingdao Suntech Sporting Goods Limited Company

The Company has a Golf Ball Manufacturing and Supply Agreement with Qingdao Suntech Sporting Goods Limited Company (“Suntech”), where Suntech manufactures and supplies certain golf balls solely for and to the Company. In connection with the agreement, the Company provides Suntech with golf ball raw materials, packing materials, molds, tooling, as well as manufacturing equipment in order to carry out the manufacturing and supply obligations set forth in the agreement. Suntech provides the personnel as well as the facilities to effectively perform these manufacturing and supply obligations. Due to the nature of the arrangement, as well as the controlling influence the Company has in the Suntech operations, the Company is required to consolidate the financial results of Suntech in its consolidated financial statements in accordance with ASC Topic 810, “Consolidations.” For the years ended December 31, 2011, 2010 and 2009, non-controlling interest related to Suntech in the Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) included net profits of $587,000, $346,000 and $475,000, respectively.

Suntech is a wholly-owned subsidiary of Suntech Mauritius Limited Company (“Mauritius”). The Company has entered into a loan agreement with Mauritius in order to provide working capital for Suntech. In connection with this loan agreement, the Company loaned Mauritius a total of $3,200,000 of which of which $1,988,000 and $2,188,000 was outstanding as of December 31, 2011 and December 30, 2010, respectively. The Company recorded the loan in other long-term assets in the accompanying consolidated balance sheets.

- Definition

The entire disclosure for noncontrolling interest in consolidated subsidiaries, which could include the name of the subsidiary, the ownership percentage held by the parent, the ownership percentage held by the noncontrolling owners, the amount of the noncontrolling interest, the location of this amount on the balance sheet (when not reported separately), an explanation of the increase or decrease in the amount of the noncontrolling interest, the noncontrolling interest share of the net Income or Loss of the subsidiary, the location of this amount on the income statement (when not reported separately), the nature of the noncontrolling interest such as background information and terms, the amount of the noncontrolling interest represented by preferred stock, a description of the preferred stock, and the dividend requirements of the preferred stock.

+ References + Details

Sale of Buildings

12 Months Ended

Dec. 31, 2011

Sale of Buildings

Note 7. Sale of Buildings

In March 2011, the Company completed the sale of three of its buildings located in Carlsbad, California, and entered into lease-back agreements for each building over a period of one to five years. The sale of these buildings was in connection with the Company’s ongoing building consolidation project aimed at consolidating the Company’s campus into a more efficient layout, and the relocation of the Company’s golf club manufacturing facilities from Carlsbad, California to Monterrey, Mexico (see Note 3). The sale resulted in net proceeds of $18,079,000 and a net gain of $12,668,000, of which $6,170,000 was recognized in general and administrative expenses during the first quarter of 2011. Due to the lease-back arrangement, the Company deferred a portion of this gain in the amount of $6,498,000, which represents the sum of the net present value of the minimum future lease payments through the end of each respective lease term. During the year ended December 31, 2011, the Company recognized $1,531,000 of this deferred gain in general and administrative expenses. The amortization of the deferred gain will offset future rent expense over the term of the leases which range from 1 to 5 years.

In addition, in December 2011, the Company completed the sale of its golf ball manufacturing facility in Gloversville, New York, which was classified as held for sale. The Company received net proceeds of $1,028,000 and recognized a $72,000 net loss on the sale.

- Definition

The entire disclosure for sale leaseback transactions. Includes the elements of a transaction involving the sale of property to another party and the lease of the property back to the seller.

+ References + Details

Selected Financial Statement Information

12 Months Ended

Dec. 31, 2011

Selected Financial Statement Information

Note 8. Selected Financial Statement Information


	December 31,
	2011			2010
	(In thousands)
Accounts receivable, net:
Trade accounts receivable	$	122,936		$	154,054
Allowance for doubtful accounts		(7,263	)		(9,411	)

	$	115,673		$	144,643

Inventories:
Raw materials	$	46,976		$	48,804
Work-in-process		1,286			1,585
Finished goods		184,808			218,202

	$	233,070		$	268,591

Property, plant and equipment, net:
Land	$	8,871		$	11,784
Buildings and improvements		81,349			109,217
Machinery and equipment		154,339			172,051
Furniture, computers and equipment		126,592			111,280
Production molds		39,761			44,096
Construction-in-process		6,591			10,155

		417,503			458,583
Accumulated depreciation		(300,356	)		(328,982	)

	$	117,147		$	129,601

Accounts payable and accrued expenses:
Accounts payable	$	39,012		$	42,518
Accrued expenses		72,465			70,024
Accrued goods in-transit		13,970			14,995
Accrued hedging contracts payable		3,746			11,775

	$	129,193		$	139,312

Accrued employee compensation and benefits:
Accrued payroll and taxes	$	13,550		$	15,436
Accrued vacation and sick pay		8,947			9,527
Accrued commissions		1,288			1,493

	$	23,785		$	26,456

Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2011

Goodwill and Intangible Assets

Note 9. Goodwill and Intangible Assets

In accordance with ASC Topic 350, “Intangibles—Goodwill and Other,” the Company’s goodwill and certain intangible assets are not amortized, but are subject to an annual impairment test. The following sets forth the intangible assets by major asset class:


	Useful Life (Years)		December 31, 2011						December 31, 2010
	Useful Life (Years)		Gross		Accumulated Amortization		Net Book Value		Gross		Accumulated Amortization		Net Book Value
					(In thousands)						(In thousands)
Indefinite-lived:
Trade name, trademark and trade dress and other		NA	$	108,834	$	—	$	108,834	$	114,247	$	—	$	114,247
Amortizing:
Patents		2-16		36,459		28,908		7,551		36,459		26,405		10,054
Developed technology and other		1-9		12,387		6,837		5,550		12,387		5,361		7,026

Total intangible assets			$	157,680	$	35,745	$	121,935	$	163,093	$	31,766	$	131,327

Aggregate amortization expense on intangible assets was approximately $3,979,000, $4,181,000 and $4,261,000 for the years ended December 31, 2011, 2010 and 2009, respectively. Amortization expense related to intangible assets at December 31, 2011 in each of the next five fiscal years and beyond is expected to be incurred as follows (in thousands):


2012	$	3,449
2013		2,560
2014		1,882
2015		1,844
2016		1,834
Thereafter		1,532

	$	13,101

Goodwill at December 31, 2011 and December 31, 2010 was $29,203,000 and $30,630,000. This decrease was due to the write-off of $1,120,000 of goodwill related to the Company’s reporting unit in Australia as a result of an impairment (see below), as well as $307,000 due to foreign currency fluctuations. Gross goodwill before impairments at December 31, 2011 and 2011 was $30,323,000 and $30,630,000, respectively.

During the second quarter of 2011, the Company conducted an impairment test on its goodwill and intangible assets, including the trade names, trademarks and other intangible assets the Company acquired in 2003 as part of the Top-Flite acquisition. The fair value of the Company’s intangible assets was calculated by taking the expected future cash flows of those assets over their estimated useful lives and discounting the cash flows based upon an appropriate discount rate. The discounted cash flow analysis was based upon management’s best estimates relating to the Company’s intangible assets such as (i) forecasted sales, (ii) estimated royalty rates, (iii) estimated long-term growth rates, and (iv) the discount rate. In calculating the expected future cash flows from the trade names and trademarks acquired as part of the Top-Flite acquisition, the Company considered the continued negative impact of a trend in the golf industry where premium branded competitor golf balls are being sold through the mass market channel as well as a recent increase of in-house brands being sold in the sporting goods and mass market channels. This increase in premium branded and in-house balls in these retail channels over the past two years as well as the fact that the Company’s business in the United States has not recovered and returned to profitability as management had previously projected has negatively impacted sales of Top-Flite branded golf balls more than previously estimated. Although management believed this competitive pressure in these retail channels would abate over time as the economy began to improve, the Company has concluded that this practice appears more permanent in nature, and accordingly has reduced its estimates of the amount of future cash flows that will be generated from these intangible assets.

In completing the impairment analysis, the Company determined that the discounted expected cash flows from the trade names and trademarks associated with the Top-Flite acquisition was $5,413,000 less than the carrying value of those assets. As a result, during the second quarter of 2011, the Company recorded an impairment charge of $5,413,000 in order to write-down these assets to fair value. During the fourth quarter of 2010, the Company also recorded an impairment charge of $7,547,000 related to the trade names and trademarks of the Top-Flite acquisition. Both charges were reflected in general and administrative expenses in the accompanying statement of operations for the years ended December 31, 2011 and 2010.

In addition, in the fourth quarter of 2011, the Company conducted an impairment test on goodwill related to its reporting unit in Australia. Due to the negative impact of significant flooding and inclimate weather as well as a decline in economic conditions in that region during 2011, the Company determined that the estimated fair value for this unit was $1,120,000 less than the unit’s net book value including goodwill. As a result, the Company recorded an impairment charge of $1,120,000 to write-off the goodwill balance related to this reporting unit.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References + Details

Financing Arrangements

12 Months Ended

Dec. 31, 2011

Financing Arrangements

Note 10. Financing Arrangements

The Company’s has a Loan and Security Agreement with Bank of America N.A. (as amended, the “ABL Facility”) which provides a senior secured asset-based revolving credit facility of up to $230,000,000, comprised of a $158,333,000 U.S. facility (of which $20,000,000 is available for letters of credit), a $31,667,000 Canadian facility (of which $5,000,000 is available for letters of credit) and a $40,000,000 United Kingdom facility (of which $2,000,000 is available for letters of credit), in each case subject to borrowing base availability under the applicable facility. Borrowing under the U.K. facility will be permitted upon satisfaction of customary conditions relating to delivery of U.K. collateral security documents. The aggregate amount outstanding under the Company’s letters of credit was $500,000 at December 31, 2011. The amounts outstanding under the ABL Facility are secured by certain assets, including inventory and accounts receivable, of the Company’s U.S., Canadian and U.K. legal entities.

As of December 31, 2011, the Company had no borrowings outstanding under the ABL Facility and had $43,023,000 of cash and cash equivalents. Generally, during the first quarter, the Company will rely more heavily on its credit facilities to fund operations as cash inflows from operations begin to increase during the second and third quarters as a result of cash collections from customers. The maximum amount of Consolidated Funded Indebtedness, including borrowings under the ABL Facility, that could have been outstanding on December 31, 2011, was approximately $87,700,000. Average outstanding borrowings during the twelve months ended December 31, 2011 were $25,086,000. Amounts borrowed under the ABL Facility may be repaid and borrowed as needed. The entire outstanding principal amount (if any) is due and payable at maturity on June 30, 2016.

The interest rate applicable to outstanding loans under the ABL Facility fluctuates depending on the Company’s trailing-twelve month EBITDA (as defined by the ABL Facility) combined with the Company’s “availability ratio” (as defined below). At December 31, 2011, the Company’s interest rate applicable to its outstanding loans under the ABL Facility was 4.75%.

The Company’s “availability ratio” is the ratio, expressed as a percentage, of (a) the average daily availability under the ABL Facility to (b) the sum of the Canadian, the U.K. and the U.S. borrowing bases, as adjusted. All applicable margins will be permanently reduced by 0.25% if EBITDA, as defined in the ABL Facility, meets or exceeds $25,000,000 over any trailing twelve-month period, and will be permanently reduced by an additional 0.25% if EBITDA meets or exceeds $50,000,000 over any trailing twelve-month period.

In addition, the ABL Facility provides for monthly fees ranging from 0.375% to 0.5% of the unused portion of the ABL Facility, depending on the prior month’s average daily balance of revolver loans and stated amount of letters of credit relative to lenders’ commitments.

The ABL Facility includes certain restrictions including, among other things, restrictions on incurrence of additional debt, liens, dividends and other restricted payments, asset sales, investments, mergers, acquisitions and affiliate transactions. Additionally, the Company will be subject to compliance with a fixed charge coverage ratio covenant during, and continuing 30 days after, any period in which the Company’s borrowing base availability falls below $25.0 million. As of December 31, 2011, the Company was in compliance with all covenants of the ABL Facility.

The origination fees incurred in connection with the ABL Facility as of December 31, 2011 totaled $3,194,000, which are included in other assets in the accompanying consolidated balance sheet, and will be amortized into interest expense over the term of the ABL Facility agreement. Unamortized origination fees were $2,925,000 as of December 31, 2011, of which $650,000 was included in other current assets and $2,275,000 in other long-term assets in the accompanying consolidated financial statements.

Derivatives and Hedging

12 Months Ended

Dec. 31, 2011

Derivatives and Hedging

Note 11. Derivatives and Hedging

Foreign Currency Exchange Contracts

The Company accounts for its foreign currency exchange contracts in accordance with ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). ASC 815 requires the recognition of all derivatives as either assets or liabilities on the balance sheet, the measurement of those instruments at fair value and the recognition of changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as an effective hedge that offsets certain exposures. In addition, it requires enhanced disclosures regarding derivative instruments and hedging activities to better convey the purpose of derivative use in terms of the risks the Company is intending to manage, specifically about (a) how and why the Company uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under ASC 815, and (c) how derivative instruments and related hedged items affect the Company’s financial position, financial performance, and cash flows.

In the normal course of business, the Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions of its international subsidiaries, including certain balance sheet exposures (payables and receivables denominated in foreign currencies). In addition, the Company is exposed to gains and losses resulting from the translation of the operating results of the Company’s international subsidiaries into U.S. dollars for financial reporting purposes. As part of its strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses derivative financial instruments in the form of foreign currency forward contracts and put and call option contracts (“foreign currency exchange contracts”) to hedge transactions that are denominated primarily in Japanese Yen, British Pounds, Euros, Canadian Dollars, Australian Dollars and Korean Won. Foreign currency exchange contracts are used only to meet the Company’s objectives of minimizing variability in the Company’s operating results arising from foreign exchange rate movements. The Company does not enter into foreign currency exchange contracts for speculative purposes. Foreign currency exchange contracts usually mature within twelve months from their inception.

During the years ended December 31, 2011, 2010 and 2009, the Company did not designate any foreign currency exchange contracts as derivatives that qualify for hedge accounting under ASC 815. At December 31, 2011, 2010 and 2009, the notional amounts of the Company’s foreign currency exchange contracts used to hedge the exposures discussed above were approximately $165,533,000, $314,190,000 and $101,723,000, respectively. The Company estimates the fair values of foreign currency exchange contracts based on pricing models using current market rates, and records all derivatives on the balance sheet at fair value with changes in fair value recorded in the statement of operations.

The following table summarizes the fair value of derivative instruments by contract type as well as the location of the asset and/or liability on the consolidated balance sheets at December 31, 2011 and 2010 (in thousands):

Asset Derivatives

December 31, 2011

December 31, 2010

Derivatives not designated as hedging
instruments

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Foreign currency exchange contracts

Other current assets

2,514

Other current assets

1,786

Liability Derivatives

December 31, 2011

December 31, 2010

Derivatives not designated as hedging
instruments

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Foreign currency exchange contracts

Accounts payable and
accrued expenses

3,746

Accounts payable and
accrued expenses

11,775

The following table summarizes the location of gains and losses on the consolidated statements of operations that were recognized during the years ended December 31, 2011, 2010 and 2009, respectively, in addition to the derivative contract type (in thousands):


		Amount of Gain / (Loss) Recognized in Income on Derivative Instruments
		Year Ended December 31,
Derivatives not designated as hedging instruments	Location of gain (loss) recognized in income on derivative instruments	2011			2010			2009
Foreign currency exchange contracts	Other income (expense), net	$	(8,861	)	$	(18,600	)	$	(7,594	)

The net realized and unrealized contractual net losses noted in the table above for the years ended December 31, 2011, 2010 and 2009 were used by the Company to offset actual foreign currency transactional net gains associated with assets and liabilities denominated in foreign currencies as well as net gains associated with the translation of foreign currencies in operating results.

- Definition

The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 45
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-SubTopic 30
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+ Details

Loss per Common Share

12 Months Ended

Dec. 31, 2011

Loss per Common Share

Note 12. Loss per Common Share

Loss per common share, basic and diluted, are computed by dividing net loss allocable to common shareholders by the weighted-average number of common shares outstanding for the period. Weighted-average common shares outstanding—diluted is the same as weighted-average common shares outstanding—basic in periods when a net loss is reported. Dividends on cumulative preferred stock are added to net loss to calculate net loss allocable to common shareholders in the basic loss per share calculation, and in the diluted loss per share calculation in periods when a net loss is reported.

Potentially dilutive securities such as common stock equivalents of convertible preferred stock, options granted pursuant to the Company’s stock option plans, potential shares related to the employee stock purchase plan (“ESPP”) and outstanding restricted stock units granted to employees and non-employees (see Note 14) are excluded from the calculation in periods when a net loss is reported as their effect would be anti-dilutive. For the years ended December 31, 2011, 2010 and 2009, shares totaling 30,676,000, 30,267,000 and 21,004,000 were excluded from the calculations as their effect would have been anti-dilutive.

The following table summarizes the computation of basic and diluted loss per share:


	Year Ended December 31,
	2011			2010			2009
	(In thousands, except per share data)
Basic and diluted loss per common share
Net loss	$	(171,820	)	$	(18,804	)	$	(15,260	)
Less: Preferred stock dividends		(10,500	)		(10,500	)		(5,688	)

Net loss allocable to common shareholders	$	(182,320	)	$	(29,304	)	$	(20,948	)

Weighted-average common shares outstanding—basic		64,601			63,902			63,176
Weighted-average common shares outstanding—diluted		64,601			63,902			63,176
Basic loss per common share	$	(2.82	)	$	(0.46	)	$	(0.33	)
Diluted loss per common share	$	(2.82	)	$	(0.46	)	$	(0.33	)

Capital Stock

12 Months Ended

Dec. 31, 2011

Capital Stock

Note 13. Capital Stock

Common Stock and Preferred Stock

The Company has an authorized capital of 243,000,000 shares, $0.01 par value, of which 240,000,000 shares are designated common stock, and 3,000,000 shares are designated preferred stock. Of the preferred stock, 240,000 shares are designated Series A Junior Participating Preferred Stock. On June 15, 2009, the Company sold 1,400,000 shares of its 7.50% Series B Cumulative Perpetual Convertible Preferred Stock, $0.01 par value. The remaining shares of preferred stock are undesignated as to series, rights, preferences, privileges or restrictions.

The holders of common stock are entitled to one vote for each share of common stock on all matters submitted to a vote of the Company’s shareholders. Although to date no shares of Series A Junior Participating Preferred Stock have been issued, if such shares were issued, each share of Series A Junior Participating Preferred Stock would entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the shareholders of the Company. The 7.50% Series B Cumulative Perpetual Convertible Preferred Stock has no maturity date or, except in limited circumstances, voting rights prior to conversion to common stock. The holders of Series A Junior Participating Preferred Stock and the holders of common stock shall generally vote together as one class on all matters submitted to a vote of the Company’s shareholders. Shareholders entitled to vote for the election of directors are entitled to vote cumulatively for one or more nominees.

Treasury Stock and Stock Repurchases

In November 2007, the Company announced that its Board of Directors authorized it to repurchase shares of its common stock in the open market or in private transactions, subject to the Company’s assessment of market conditions and buying opportunities, up to a maximum cost to the Company of $100,000,000, which would remain in effect until completed or otherwise terminated by the Board of Directors (the “November 2007 repurchase program”). The November 2007 repurchase program supersedes all prior stock repurchase authorizations.

During 2011, the Company repurchased 227,000 shares of its common stock under the November 2007 repurchase program at an average cost per share of $6.99 for a total cost of $1,587,000. These shares were repurchased to settle shares withheld for taxes due by holders of restricted stock awards. The Company’s repurchases of shares of common stock are recorded at cost and result in a reduction of shareholders’ equity. As of December 31, 2011, the Company remained authorized to repurchase up to an additional $73,577,000 of its common stock under the November 2007 repurchase program.

Grantor Stock Trust

In July 1995, the Company established the Callaway Golf Company Grantor Stock Trust (the “GST”) for the purpose of funding the Company’s obligations with respect to one or more of the Company’s nonqualified or qualified employee benefit plans. The GST shares were used primarily for the settlement of employee equity-based awards, including restricted stock awards and units, stock option exercises and employee stock plan purchases.

During 2011, the GST was terminated. The following table presents shares released from the GST for the years ended December 31, 2011, 2010 and 2009:


	Year Ended December 31,
	2011		2010		2009
	(In thousands)
Employee stock option exercises		—		62		—
Employee restricted stock units vested		205		221		36
Employee stock plan purchases		86		409		421

Total shares released from the GST		291		692		457

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Principles Board Opinion (APB)
-Number 12
-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 04
-Article 3

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 4
-Section 08
-Paragraph d

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 43
-Chapter 1
-Section B
-Paragraph 7, 11A
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 129
-Paragraph 2, 3, 4, 5, 6, 7, 8
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Article 4

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
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-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 29, 30, 31
-Article 5

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section E

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section C

Reference 11: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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+ Details

Share-Based Compensation

12 Months Ended

Dec. 31, 2011

Share-Based Compensation

Note 14. Share-Based Compensation

The Company accounts for its share-based compensation arrangements in accordance with ASC Topic 718, which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. ASC Topic 718 further requires a reduction in share-based compensation expense by an estimated forfeiture rate. The forfeiture rate used by the Company is based on historical forfeiture trends. If actual forfeiture rates are not consistent with the Company’s estimates, the Company may be required to increase or decrease compensation expenses in future periods.

The Company uses the alternative transition method for calculating the tax effects of share-based compensation pursuant to ASC Topic 718. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC Pool”) related to the tax effects of employee share-based compensation, and to determine the subsequent impact on the APIC Pool and consolidated statements of cash flows of the tax effects of employee and director share-based awards that were outstanding upon adoption of ASC Topic 718.

Stock Plans

As of December 31, 2011, the Company had only one shareholder approved stock plan under which shares were available for equity-based awards: the Callaway Golf Company Amended and Restated 2004 Incentive Plan (the “2004 Plan”). The 2004 Plan permits the granting of stock options, stock appreciation rights, restricted stock and restricted stock units and other equity-based awards to the Company’s officers, employees, consultants and certain other non-employees who provide services to the Company. All grants under the 2004 Plan are discretionary, although no participant may receive awards in any one year in excess of 2,000,000 shares. The maximum number of shares issuable over the term of the 2004 Plan is 17,500,000.

The following table presents shares authorized, available for future grant and outstanding under each of the Company’s plans as of December 31, 2011:


	Authorized		Available			Outstanding
	(In thousands)
Promotion, Marketing and Endorsement Stock Incentive Plan		3,560		—			200
1995 Employee Stock Incentive Plan		10,800		—			1,038
1996 Stock Option Plan		9,000		—			321
2001 Directors Plan		500		92	*		332
2004 Plan		17,500		1,650			8,656

Total		41,360		1,742			10,547

*	The Company’s 2001 Non-Employee Directors Plan expired on December 31, 2011. The shares available for grant under this plan are only available to satisfy incremental dividend equivalent rights for outstanding awards.

Stock Options

All stock option grants made under the 2004 Plan are made at exercise prices no less than the Company’s closing stock price on the date of grant. Outstanding stock options generally vest over a three-year period from the grant date and generally expire up to 10 years after the grant date. The Company recorded $3,306,000, $3,606,000 and $3,384,000 of compensation expense relating to outstanding stock options for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The model uses various assumptions, including a risk-free interest rate, the expected term of the options, the expected stock price volatility, and the expected dividend yield. Compensation expense for employee stock options is recognized on a straight-line basis over the vesting term and is reduced by an estimate for forfeitures, which is based on the Company’s historical forfeitures of unvested options and awards. For the years ended December 31, 2011, 2010 and 2009, the weighted average estimated forfeiture rate used was 4.5%, 3.5% and 4.4%, respectively. The table below summarizes the average fair value assumptions used in the valuation of stock options granted during the years ended December 31, 2011, 2010 and 2009.


	2011		2010		2009
Dividend yield		1.4%		1.1%		1.9%
Expected volatility		48.5%		46.2%		42.7%
Risk-free interest rate		2.0%		2.2%		1.4%
Expected life		5.0 years		4.7 years		4.1 years

The Company uses forecasted dividends to estimate the expected dividend yield as dividends paid have decreased beginning in 2009. The expected volatility is based on the historical volatility, among other factors, of the Company’s stock. The risk-free interest rate is based on the U.S. Treasury yield curve at the date of grant with maturity dates approximately equal to the expected term of the options at the date of the grant. The expected life of the Company’s options is based on evaluations of historical employee exercise behavior, forfeitures, cancellations and other factors. The valuation model applied in this calculation utilizes highly subjective assumptions that could potentially change over time. Changes in the subjective input assumptions can materially affect the fair value estimates of an option. Furthermore, the estimated fair value of an option does not necessarily represent the value that will ultimately be realized by the employee holding the option.

The following table summarizes the Company’s stock option activities for the year ended December 31, 2011 (in thousands, except price per share and contractual term):


Options	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2011		9,732		$	12.55
Granted		1,731		$	7.51
Exercised		—		$	—
Forfeited		(293	)	$	7.51
Expired		(1,258	)	$	17.21

Outstanding at December 31, 2011		9,912		$	11.23		3.26	$	—
Vested and expected to vest in the future at December 31, 2011		9,854		$	11.25		3.23	$	—
Exercisable at December 31, 2011		8,065		$	12.06		2.24	$	—

The weighted-average grant-date fair value of options granted during the years ended December 31, 2011, 2010 and 2009 was $2.94, $2.37 and $3.95 per share, respectively. The total intrinsic value for options exercised during the years ended December 31, 2010 was $85,000. No options were exercised during the years ended December 31, 2011 and 2009.

At December 31, 2011, there was $3,351,000 of total unrecognized compensation expense related to options granted to employees under the Company’s share-based payment plans. That cost is expected to be recognized over a weighted-average period of 1.3 years. The amount of unrecognized compensation expense noted above does not necessarily represent the amount that will ultimately be realized by the Company in its consolidated statement of operations.

Cash received from the exercise of stock options for the year ended December 31, 2010 was $564,000. There were no stock option exercises in 2011 and 2009. During 2010, the Company settled the exercise of stock options through the Callaway Golf Company Grantor Stock Trust (see Note 13).

Restricted Stock Awards and Restricted Stock Units

All restricted stock awards and restricted stock units awarded under the 2004 Plan and the 2001 Directors Plan are recorded at the Company’s closing stock price on the date of grant. Restricted stock awards and restricted stock units generally cliff-vest over a three year period. In connection with restricted stock awards, the Company recorded compensation expense of $51,000 in 2010 and reversed compensation expense of $223,000 in 2009, due to employee terminations. The Company did not grant restricted stock awards in 2011, 2010 and 2009. In 2011, 2010 and 2009, the Company recorded $1,799,000, $3,126,000 and $3,400,000, respectively, of compensation expense related to restricted stock units.

The table below summarizes the total number of restricted stock units granted to certain employees and directors and the weighted average grant date fair value during the years ended December 31, 2011, 2010 and 2009 (number of shares are in thousands).


	# of Units Granted						Weighted Average Grant-Date Fair Value
	2011		2010		2009		2011		2010		2009
Restricted Stock Units		61		505		512	$	7.01	$	7.64	$	7.72

The table below is a roll-forward of the activity for restricted stock units during the twelve months ended December 31, 2011 (in thousands, except fair value amounts):


Restricted Stock Units	Units			Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2011		1,246		$	9.33
Granted		61			7.01
Vested		(606	)		11.05
Forfeited		(77	)		7.49

Nonvested at December 31, 2011		624		$	7.62

At December 31, 2011, there was $1,460,000 of total unrecognized compensation expense related to nonvested restricted stock units granted to employees under the Company’s share-based payment plans. That cost is expected to be recognized over a weighted-average period of 0.8 years. The amount of unrecognized compensation expense noted above does not necessarily represent the amount that will ultimately be realized by the Company in its consolidated statement of operations.

Phantom Stock Units

Phantom stock units (“PSUs”) awarded under the 2004 Plan are a form of share-based award that is indexed to the Company’s stock and is settled in cash. As such, these awards are classified as liabilities. Because PSUs are settled in cash, compensation expense recognized over the vesting period will vary based on changes in fair value. Fair value is remeasured at the end of each interim reporting period and is based on the closing price of the Company’s stock. PSUs generally vest over two and three year periods. The table below summarizes the total number of PSUs granted to employees during the years ended December 31, 2011, 2010 and 2009 (in thousands).

# of Units
Granted

2011

2010

2009

Phantom stock units

679

—

1,150

The table below is a roll-forward of the activity for phantom stock units during the twelve months ended December 31, 2011 (in thousands, except fair value amounts):


Phantom Stock Units	Units			Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2011		1,125		$	7.87
Granted		679			7.51
Vested		(883	)		7.78
Forfeited		(200	)		7.70

Nonvested at December 31, 2011		721		$	7.68

In connection with these awards, the Company recognized compensation expense of $2,095,000 and $3,801,000 for the years ended December 31, 2011and 2010, respectively. Compensation expense recognized in 2009 was nominal. Accrued compensation expense for PSUs was $1,919,000 at December 31, 2011, of which $1,325,000 was included in accrued employee compensation and benefits and $594,000 was included in long-term incentive compensation and other in the accompanying consolidated balance sheet. Accrued compensation expense at December 31, 2010 was $3,801,000, of which $2,281,000 was included in accrued employee compensation and benefits and $1,520,000 was included in long-term incentive compensation and other in the accompanying consolidated balance sheet.

Stock Appreciation Rights

In 2011, the Company granted 500,000 units of cash settled stock appreciation rights (“SARs”) that vest over one year. The Company records compensation expense for SARs based on the estimated fair value on the date of grant using the Black Scholes option-pricing model. SARs are subsequently remeasured at each interim reporting period based on a revised Black Scholes value until they are exercised. As of December 31, 2011, the Company recognized $321,000 in compensation expense related to these awards with the corresponding accrual in accrued employee compensation and benefits in the accompanying consolidated balance sheet.

Employee Stock Purchase Plan

Pursuant to the amended and restated Callaway Golf Employee Stock Purchase Plan (the “Plan”), participating employees authorize the Company to withhold compensation and to use the withheld amounts to purchase shares of the Company’s common stock at 85% of the closing price on the last day of each six-month offering period. During the third quarter in 2011, in connection with the Company’s Reorganization and Reinvestment Initiatives (see Note 3), the Company terminated the Employee Stock Purchase Plan.

In 2011, 2010 and 2009 the Company purchased approximately 376,000, 409,000 and 421,000 shares, respectively, of common stock under the Plan on behalf of participating employees and recorded compensation expense of $234,000, $404,000 and $452,000, respectively.

Share-Based Compensation Expense

The table below summarizes the amounts recognized in the financial statements for the years ended December 31, 2011, 2010 and 2009 for share-based compensation related to employees and directors. Amounts are in thousands, except for per share data.


	2011			2010			2009
Cost of sales	$	424		$	938		$	457
Operating expenses		10,882			12,451			8,356

Total cost of employee share-based compensation included in loss before income tax		11,306			13,389			8,813
Income tax benefit		(4,353	)		(4,406	)		(2,705	)

Amount included in net loss	$	6,953		$	8,983		$	6,108

Impact on net loss per common share:
Basic	$	(0.11	)	$	(0.14	)	$	(0.10	)
Diluted	$	(0.11	)	$	(0.14	)	$	(0.10	)

In connection with an employment agreement with a former executive officer of the Company, the Company was contractually obligated to grant $11,730,000 in the form of various share-based awards over the service period stipulated in the agreement. As a result, the total contractual obligation related to these equity awards was recognized on a straight-line basis over the contract term, which resulted in the recognition of compensation expense of $1,415,000, $2,401,000 and $1,800,000 in 2011, 2010 and 2009, respectively. In 2011, as a result of the resignation of the executive officer, the Company accelerated the vesting period of all outstanding equity awards granted under the employment agreement, which resulted in the recognition of additional compensation expense of $2,136,000.

In total, in connection with the Reorganization and Reinvestment Initiatives announced in June 2011 (see Note 3), the Company recognized $3,539,000 during the year ended December 31, 2011 in stock compensation expense as a result of the contractual acceleration of the vesting of certain stock options, restricted stock units and phantom stock units. There were no material award accelerations during 2010 and 2009.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 123R
-Paragraph 64, 65, A240
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 93-6
-Paragraph 53
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 14

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 50
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 40
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929

+ Details

Employee Benefit Plans

12 Months Ended

Dec. 31, 2011

Employee Benefit Plans

Note 15. Employee Benefit Plans

The Company has a voluntary deferred compensation plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) for all employees who satisfy the age and service requirements under the 401(k) Plan. Each participant may elect to contribute up to 25% of annual compensation, up to the maximum permitted under federal law. In 2011 and 2010, the Company matched an amount equal to 100% of the participant’s contributions up to 6% of their eligible annual compensation. In 2009, the Company match was temporarily suspended in light of the unfavorable economic conditions and the Company’s efforts to reduce costs during that year.

The portion of the participant’s account attributable to elective deferral contributions and rollover contributions are 100% vested and nonforfeitable. Participants vest in employer matching and profit sharing contributions at a rate of 25% per year, becoming fully vested after the completion of four years of service. In accordance with the provisions of the 401(k) Plan, the Company matched employee contributions in the amount of $5,061,000, $5,431,000 and $1,380,000 during 2011, 2010 and 2009, respectively. Additionally, the Company can make discretionary contributions based on the profitability of the Company. For the years ended December 31, 2011, 2010 and 2009 there were no discretionary contributions.

Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Note 16. Income Taxes

The Company’s loss before income tax provision (benefit) was subject to taxes in the following jurisdictions for the following periods (in thousands):


	Year Ended December 31,
	2011			2010			2009
United States	$	(105,841	)	$	(46,365	)	$	(46,967	)
Foreign		15,580			10,803			17,364

	$	(90,261	)	$	(35,562	)	$	(29,603	)

The expense (benefit) for income taxes is comprised of (in thousands):


	Year Ended December 31,
	2011		2010			2009
Current tax provision (benefit):
Federal	$	19,908	$	(18,494	)	$	(23,311	)
State		580		361			790
Foreign		4,964		5,743			5,329

		25,452		(12,390	)		(17,192	)

Deferred tax expense (benefit):
Federal		43,948		117			4,752
State		10,987		(2,988	)		(1,655	)
Foreign		1,172		(1,497	)		(248	)

		56,107		(4,368	)		2,849

Income tax provision (benefit)	$	81,559	$	(16,758	)	$	(14,343	)

During 2011, 2010 and 2009, tax benefits related to the exercise or vesting of stock-based awards were $0, $492,000 and $1,028,000, respectively. Such benefits were recorded as a reduction of income taxes payable with a corresponding increase in additional paid-in capital or a decrease to deferred tax assets in connection with compensation cost previously recognized in income.

Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related asset or liability. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2011 and 2010 are as follows (in thousands):


	December 31,
	2011			2010
Deferred tax assets:
Reserves and allowances not currently deductible for tax purposes	$	14,161		$	18,113
Basis difference related to fixed assets		7,891			15,083
Compensation and benefits		3,932			4,550
Basis difference for inventory valuation		2,252			3,549
Compensatory stock options and rights		9,927			9,932
Deferred revenue and other		2,151			1,330
Operating loss carryforwards		66,332			4,766
Tax credit carryforwards		9,402			8,124
Correlative effects of global income allocations		424			—
Basis difference related to intangible assets with a definite life		2,725			1,519

Total deferred tax assets		119,197			66,966
Valuation allowance for deferred tax assets		(110,844	)		(1,704	)

Deferred tax assets, net of valuation allowance	$	8,353		$	65,262

Deferred tax liabilities:
State taxes, net of federal income tax benefit		(1,472	)		(3,744	)
Prepaid expenses		(2,582	)		(2,086	)
Other		(108	)		(138	)
Basis difference related to intangible assets with an indefinite life		(34,313	)		(33,397	)

Total deferred tax liabilities		(38,475	)		(39,365	)

Net deferred tax assets	$	(30,122	)	$	25,897

Net deferred tax assets are shown on the accompanying consolidated balance sheets as follows:
Current deferred tax assets	$	4,029		$	23,514
Non-current deferred tax assets		1,386			3,786
Current deferred tax liabilities		(4,108	)		(27	)
Non-current deferred tax liabilities		(31,429	)		(1,376	)

Net deferred tax assets (liabilities)	$	(30,122	)	$	25,897

The current year change in net deferred taxes of $56,019,000 is comprised of a net deferred expense of $57,291,000 recorded through current income tax expense for the year ended December 31, 2011, offset by $88,000 of foreign currency translation adjustments and a net deferred benefit of $1,184,000 related to reserves for uncertain tax positions in accordance with ASC Topic 740-25-6.

Deferred tax assets and liabilities result from temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are anticipated to be in effect at the time the differences are expected to reverse. The realization of the deferred tax assets, including the loss and credit carry forwards listed above, is subject to the Company generating sufficient taxable income during the periods in which the temporary differences become realizable. In accordance with the applicable accounting rules, the Company maintains a valuation allowance for a deferred tax asset when it deemed it to be more likely than not that some or all of the deferred tax asset will not be realized. In evaluating whether a valuation allowance is required under such rules, the Company considers all available positive and negative evidence, including prior operating results, the nature and reason for any losses, its forecast of future taxable income, and the dates on which any deferred tax assets are expected to expire. These assumptions require a significant amount of judgment, including estimates of future taxable income. These estimates are based on the Company’s best judgment at the time made based on current and projected circumstances and conditions.

At December 31, 2011, the Company had deferred tax assets of $119,197,000. Approximately $115,296,000 of the deferred tax assets pertain to the Company’s U.S. business and $3,901,000 pertain to foreign jurisdictions. In evaluating the likelihood that these deferred tax assets will be realized, the Company considered the Company’s taxable loss in the United States in each of the past three years, the reasons for such loss, the Company’s projected financial forecast for the U.S business, and the dates on which the deferred tax assets are expected to expire. When evaluated in light of the applicable standards, this evidence suggests that the Company should establish a valuation allowance. As a result, in 2011, the Company recorded a $52,455,000 increase to income tax expense in order to establish a valuation allowance against its U.S. deferred tax assets and discontinued recognizing income tax benefits related to its U.S. net operating losses. If sufficient positive evidence arises in the future, such as a sustained return to profitability, any existing valuation allowance could be reversed as appropriate, decreasing income tax expense in the period that such conclusion is reached. The Company has concluded that with respect to non-U.S. entities, there is sufficient positive evidence to conclude that realization of its deferred tax assets is deemed to be more likely than not under applicable accounting rules, and no allowances have been established.

The non-cash charge to establish a valuation allowance does not have any impact on the Company’s consolidated cash flows, nor does such an allowance preclude the Company from using loss carry forwards or other deferred tax assets in the future, except as described below. Until the Company re-establishes a pattern of continuing profitability, in accordance with the applicable accounting guidance, U.S. income tax expense or benefit related to the recognition of deferred tax assets in the consolidated statement of operations for future periods will be offset by decreases or increases in the valuation allowance with no net effect on the consolidated statement of operations.

As a result of the establishment of the valuation allowance against its U.S. deferred tax assets, the Company does not recognize a tax benefit on taxable losses generated in the U.S. Furthermore, income taxes related to intercompany profits generated from sales in the U.S. to the Company’s foreign subsidiaries that would typically impact the statement of operations in periods with no valuation allowance are no longer deferred and amounts previously accumulated as prepaid tax expense are charged to the provision for income taxes in the statement of operations. The reversal of the prepaid tax asset is included in the determination of the annual estimated effective tax rate resulting in $21,634,000 of tax expense for the year ended 2011.

The Company has federal and state income tax credit carryforwards of $5,166,000 and $6,363,000 respectively, which will expire at various dates beginning in 2020. Such credit carryforward expire as follows:


U.S. foreign tax credit	3,579,000	2020 - 2021
U.S. research tax credit	1,587,000	2030 - 2031
State investment tax credits	555,000	Do not expire
State research tax credits	5,808,000	Do not expire

The Company has recorded a deferred tax asset reflecting the benefit of operating loss carryforwards. The net operating losses expire as follows:


U.S. loss carryforwards	$	159,917,000	2031
State loss carryforwards	$	121,919,000	2012 - 2034
Foreign loss carryforwards	$	1,174,000	2019

Although the Company has set up a valuation allowance against the majority of its U.S. federal and state deferred tax assets, which include net operating loss carry forwards (“NOLs”) and other losses, such allowance does not preclude the Company from using the deferred tax assets in the future. However, the Company’s ability to utilize the losses to offset future taxable income may be deferred or limited significantly if the Company were to experience an “ownership change” as defined in section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an ownership change will occur if there is a cumulative increase in ownership of the Company’s stock by “5-percent shareholders” (as defined in the Code) that exceeds 50 percentage points over a rolling three-year period. The determination of whether an ownership change has occurred for purposes of Section 382 is complex and requires significant judgment. The extent to which the Company’s ability to utilize the losses is limited as a result of such an ownership change depends on many variables, including the value of the Company’s stock at the time of the ownership change. Although the Company’s ownership has changed significantly during the three-year period ended December 31, 2011 (due in significant part to the Company’s June 2009 preferred stock offering), the Company does not believe there has been a cumulative increase in ownership in excess of 50 percentage points during that period. The Company continues to monitor changes in ownership. If such a cumulative increase did occur in any three year period and the Company was limited in the amount of losses it could use to offset taxable income, the Company’s results of operations and cash flows would be adversely impacted.

A reconciliation of the effective tax rate on income or loss and the statutory tax rate is as follows:


	Year Ended December 31,
	2011			2010			2009
Statutory U.S. tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of U.S. tax benefit		(0.8	)%		1.5	%		1.4	%
Federal and State tax credits, net of U.S. tax benefit		—			2.6	%		5.4	%
Expenses with no tax benefit		0.2	%		(2.4	)%		(3.4	)%
Domestic manufacturing tax benefits		—			—			(0.7	)%
Effect of foreign rate changes		(0.5	)%		—			—
Amortization of intangibles with an indefinite life		(1.0	)%		—			—
Release of prepaid taxes on intercompany profit		(24.0	)%		—			—
Change in deferred tax valuation allowance		(98.6	)%		2.2	%		(0.8	)%
Reversal of previously accrued taxes		—			1.4	%		1.5	%
Accrual for interest and income taxes related to uncertain tax positions		(0.6	)%		5.2	%		7.7	%
Other		(0.1	)%		1.6	%		2.4	%

Effective tax rate		(90.4	)%		47.1	%		48.5	%

In 2011, 2010 and 2009, the tax rate benefited from net favorable adjustments to previously estimated tax liabilities in the amount of $2,000, $515,000 and $457,000, respectively. The most significant favorable adjustments in each year related to adjustments resulting from the finalization of the Company’s prior year U.S. and state income tax returns as well as agreements reached with the Internal Revenue Service (“IRS”) and other major jurisdictions on certain issues necessitating a reassessment of the Company’s tax exposures for all open tax years, with no individual year being significantly affected.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


	2011			2010			2009
Balance at January 1	$	9,121		$	15,831		$	16,525
Additions based on tax positions related to the current year		830			1,825			1,364
Additions for tax positions of prior years		370			110			866
Reductions for tax positions of prior years		(39	)		(1,832	)		(70	)
Settlement of tax audits		—			(4,157	)		(1,842	)
Reductions due to lapsed statute of limitations		(407	)		(2,656	)		(1,012	)

Balance at December 31	$	9,875		$	9,121		$	15,831

As of December 31, 2011, the liability for income taxes associated with uncertain tax benefits was $9,875,000 and can be reduced by $4,310,000 of offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments which was recorded as a long-term income tax receivable, as well as $1,089,000 of tax benefits associated with state income taxes and other timing adjustments which are recorded as deferred income taxes pursuant to ASC Topic 740-25-6. The net amount of $4,476,000, if recognized, would affect the Company’s financial statements and favorably affect the Company’s effective income tax rate.

The Company does expect changes in the amount of unrecognized tax benefits in the next twelve months; however, the Company does not expect the changes to have a material impact on its results of operations or its financial position.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. For the years ended December 31, 2011, 2010 and 2009, the Company recognized tax expense of approximately $242,000, and a net benefit of approximately $490,000 and $190,000, respectively, related to interest and penalties in the provision for income taxes. As of December 31, 2011 and 2010, the Company had accrued $890,000 and $648,000, respectively, (before income tax benefit) in long-term liabilities for the payment of interest and penalties.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax authorities in its major jurisdictions as follows:


Major Tax Jurisdiction	Years No Longer Subject to Audit
U.S. federal		2007 and prior
California (U.S.)		2006 and prior
Canada		2006 and prior
Japan		2007 and prior
Korea		2008 and prior
United Kingdom		2007 and prior

As of December 31, 2011, the Company did not provide for United States income taxes or foreign withholding taxes on a cumulative total of $97,551,000 of undistributed earnings from certain non-U.S. subsidiaries that will be permanently reinvested outside the United States. Upon remittance, certain foreign countries impose withholding taxes that are then available, subject to certain limitations, for use as credits against the Company’s U.S. tax liability, if any. It is not practicable to estimate the amount of the deferred tax liability on such unremitted earnings. Should the Company repatriate foreign earnings, the Company would have to adjust the income tax provision in the period management determined that the Company would repatriate earnings.

Subsequent to the issuance of the consolidated financial statements for the year ended December 31, 2010, the Company identified that it had understated its long-term deferred tax liabilities by approximately $8,967,000 in its consolidated financial statements as of December 31, 2010 and in certain prior periods. This understatement relates to the tax treatment of certain intangible assets, certain depreciable assets, deductible stock options and deferred revenue related to gift cards, all of which relate to periods prior to 2008. Accordingly, the Company recorded a prior period adjustment as of December 31, 2008, which resulted in a decrease to retained earnings of $9,428,000 and an increase to additional paid-in capital of $461,000, with corresponding decreases of $879,000 and $8,088,000 to short-term and long-term deferred tax assets. These corrections do not impact the Company’s consolidated statements of operations previously reported in the Company’s consolidated financial statements for each of the three years in the period ended December 31, 2010. The Company does not believe the foregoing corrections are material to such financial statements. The effects of these corrections on the Company’s December 31, 2010 consolidated financial statements are summarized as follows (in thousands):


	December 31, 2010
	As Previously Reported		As Corrected
Deferred tax assets, net (current)	$	24,393	$	23,514
Deferred tax assets, net (non-current)	$	11,874	$	3,786
Additional paid-in capital	$	263,774	$	264,235
Retained earnings	$	442,405	$	432,977

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Paragraph h
-Article 4

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 136, 172
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 43, 44, 45, 46, 47, 48, 49
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 9
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(h))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319

+ Details

Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies

Note 17. Commitments and Contingencies

Legal Matters

The Company is subject to routine legal claims, proceedings, and investigations incident to its business activities, including claims, proceedings, and investigations relating to commercial disputes and employment matters. The Company also receives from time to time information claiming that products sold by the Company infringe or may infringe patent, trademark, or other intellectual property rights of third parties. One or more such claims of potential infringement could lead to litigation, the need to obtain licenses, the need to alter a product to avoid infringement, a settlement or judgment, or some other action or material loss by the Company, which also 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 is occasionally subject to non-routine claims, proceedings, or investigations.

The Company regularly assesses such matters to determine the degree of probability that the Company will incur a loss as a result of such matters as well as the range of possible loss. An estimated loss contingency is accrued in the Company’s financial statements if it is probable the Company will incur a loss and the amount of the loss can be reasonably estimated. The Company reviews all claims, proceedings, and investigations at least quarterly and establishes or adjusts any accruals for such matters to reflect the impact of negotiations, settlements, advice of legal counsel, and other information and events pertaining to a particular matter. All legal costs associated with such matters are expensed as incurred.

Historically, the claims, proceedings and investigations brought against the Company, individually, and in the aggregate, have not had a material adverse effect upon the consolidated results of operations, cash flows, or financial position of the Company. The Company believes that it has valid legal defenses to the matters currently pending against the Company. These matters, including the matters specifically described below, are inherently unpredictable and the resolutions of those matters are subject to many uncertainties and the outcomes are not predictable with assurance. Consequently, management is unable to estimate the ultimate aggregate amount of monetary loss, amounts covered by insurance, or the financial impact that will result from such matters. Management believes that the final resolution of the current matters pending against the Company, individually and in the aggregate, will not have a material adverse effect upon the Company’s consolidated financial position. It is possible, however, that the Company’s results of operations or cash flows could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.

Set forth below is a description of certain litigation to which the Company is a party.

The 2006 Pro V1 Golf Ball Patent Infringement Litigation

On February 9, 2006, the Company filed a complaint in the United States District Court in Delaware (Case No. C.A. 06-91) asserting patent infringement claims against the Acushnet Company, a wholly-owned subsidiary of Fortune Brands, alleging that Acushnet’s Titleist Pro V1 family of golf balls infringed nine claims contained in four golf ball patents owned by the Company. The Company prevailed in a December 2007 jury trial on 8 of the 9 patent claims asserted against Acushnet. In November 2008, the Delaware District Court entered a permanent injunction prohibiting continued sales of the infringing Pro V1 golf balls by Acushnet. In August 2009, the United States Court of Appeals for the Federal Circuit reversed and remanded the case for a new trial. The case was retried and on March 29, 2010, a jury found that the claims in the patents asserted by the Company against Acushnet were invalid. On April 21, 2011, the District Court in Delaware denied, in part, the Company’s motion for judgment as a matter of law and denied the Company’s motion for a new trial. The Company has appealed the District Court’s rulings to the Court of Appeals for the Federal Circuit, Appeal No. 2011-1407.

In 2006 Acushnet filed requests for reexamination of the patents asserted by the Company in the United States Patent and Trademark Office (“PTO”). On March 9, 2011, the Board of Patent Appeals and Interferences (“BPAI”) affirmed an examiner’s rejection of the patents, relying on evidence submitted by Acushnet in its requests for reexamination. On April 11, 2011, the Company asked the BPAI to reconsider its decision. On September 24, 2011, the BPAI denied the Company’s request for reconsideration. The Company has appealed the BPAI’s decision to the Federal Circuit, Appeal Nos. 2011-1622, 2011-1623, 2011-1624, and 2011-1625. The Company has asserted in the 2006 Pro V1 Golf Ball Patent Litigation described above that Acushnet breached a 1996 settlement agreement by filing the requests for reexamination of the asserted patents in the PTO. On January 13, 2011, the District Court in Delaware entered an order finding Acushnet breached the 1996 settlement agreement by filing the reexamination requests in the PTO. Damages for Acushnet’s breach of the 1996 settlement agreement have not yet been determined by the Court or by a jury.

On March 15, 2011, the Company filed suit against the Director of the PTO in the United States District Court for the Eastern District of Virginia, Case No. 1:11 cv 266, seeking a court order vacating, holding unlawful, and setting aside the PTO’s orders in the reexamination proceedings initiated by Acushnet. Among other things, the Company has alleged that the PTO’s refusal to vacate or stay the reexamination proceedings—in the face of the Delaware court’s order determining that the PTO proceedings were initiated in breach of the 1996 settlement agreement—exceeded the PTO’s jurisdiction and authority and was arbitrary, capricious, and otherwise contrary to law. On July 27, 2011, the Court granted the PTO’s motion for summary judgment, holding that the PTO’s actions were not arbitrary, capricious or contrary to the law. The Company has appealed the Court’s decision to the Federal Circuit, Appeal No. 2011-1551.

The 2009 Pro V1 Golf Ball Patent Litigation

After the District Court in Delaware issued a permanent injunction barring further sales of the infringing Pro V1 golf balls in November 2008, Acushnet introduced a new version of those golf balls. On March 3, 2009, the Company filed a complaint in the United States District Court for the District of Delaware, Case No. C.A. 09131, asserting claims against Acushnet for patent infringement with regard to the new balls. Specifically, the complaint asserts that two golf ball patents owned by the Company and acquired from Top-Flite are infringed by the new versions of the Pro V1 golf balls introduced in 2009. Acushnet has filed requests for reexamination with the PTO challenging the validity of the two patents asserted by the Company in the 2009 litigation. The PTO has issued final office actions rejecting the claims of the two patents and the Company has appealed those rejections to the BPAI.

On March 3, 2009, Acushnet filed a complaint in the United States District Court for the District of Delaware, Case No. C.A. 09-130, asserting claims against the Company for patent infringement. Specifically, Acushnet asserts that the Company’s sale of the Company’s Tour golf balls infringe nine Acushnet golf ball patents. Acushnet then dropped one of the patents, but expanded its infringement contentions to allege that seven other models of the Company’s golf balls, using the Company’s patented HX surface geometry, infringe five of the Acushnet patents asserted in its suit. Acushnet is seeking damages and an injunction to prevent alleged infringement by the Company. The case was consolidated for discovery and pretrial with the Company’s March 3, 2009 case against Acushnet, described above.

On February 25, 2011, the District Court in Delaware entered an order temporarily staying the 2009 cases pursuant to the stipulation of the parties. On May 6, 2011, the parties requested, and the District Court agreed, to temporarily continue the stay of the 2009 cases. Pursuant to an agreement between the parties, the stay remains in place.

Corporate Trade Inc. Litigation

On January 19, 2009, the Company filed suit in the Superior Court for the County of San Diego, Case No. 37-2009-00050363-CU-BC-NC, against Corporate Trade Inc. (“CTI”) seeking damages for breach of contract and for declaratory relief based on the asserted use and transfer of corporate trade credits to the Company in connection with the purchase of assets from Top-Flite in 2003. On January 26, 2009, CTI filed its own suit in the United States District Court for the Southern District of New York, Case No. 09CV0698, asserting claims for breach of contract, account stated and unjust enrichment, and seeking damages of approximately $8,900,000. On February 26, 2009, CTI removed the Company’s San Diego case to the United States District Court for the Southern District of California. On March 1, 2010, the San Diego case was transferred to the Southern District of New York where it was consolidated with the New York case. On January 17, 2012, the parties entered into a settlement agreement resolving all disputes; the case was dismissed on January 25, 2012.

Lease Commitments

The Company leases certain warehouse, distribution and office facilities, vehicles as well as office equipment under operating leases. Lease terms range from 1 to 7 years expiring at various dates through February 2018, with options to renew at varying terms. Commitments for minimum lease payments under non-cancelable operating leases as of December 31, 2011 are as follows (in thousands):


2012	$	14,059
2013		6,318
2014		5,078
2015		3,633
2016		2,137
Thereafter		1,896

	$	33,121

Rent expense for the years ended December 31, 2011, 2010 and 2009 was $22,318,000, $13,967,000 and $13,567,000, respectively.

Unconditional Purchase Obligations and Other Contractual Obligations

During the normal course of its business, the Company enters into agreements to purchase goods and services, including purchase commitments for production materials, endorsement agreements with professional golfers and other endorsers, employment and consulting agreements, and intellectual property licensing agreements pursuant to which the Company is required to pay royalty fees. It is not possible to determine the amounts the Company will ultimately be required to pay under these agreements as they are subject to many variables including performance-based bonuses, reductions in payment obligations if designated minimum performance criteria are not achieved, and severance arrangements. As of December 31, 2011, the Company has entered into many of these contractual agreements with terms ranging from one to six years. The minimum obligation that the Company is required to pay under these agreements is $79,049,000 over the next six years. In addition, the Company also enters into unconditional purchase obligations with various vendors and suppliers of goods and services in the normal course of operations through purchase orders or other documentation or that are undocumented except for an invoice. Such unconditional purchase obligations are generally outstanding for periods less than a year and are settled by cash payments upon delivery of goods and services and are not reflected in this total. Future purchase commitments as of December 31, 2011 are as follows (in thousands):


2012	$	47,447
2013		20,195
2014		10,926
2015		430
2016		26
Thereafter		25

	$	79,049

Other Contingent Contractual Obligations

During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include (i) intellectual property indemnities to the Company’s customers and licensees in connection with the use, sale and/or license of Company products, (ii) indemnities to various lessors in connection with facility leases for certain claims arising from such facilities or leases, (iii) indemnities to vendors and service providers pertaining to the goods and services provided to the Company or based on the negligence or willful misconduct of the Company and (iv) indemnities involving the accuracy of representations and warranties in certain contracts. In addition, the Company has consulting agreements that provide for payment of nominal fees upon the issuance of patents and/or the commercialization of research results. The Company has also issued guarantees in the form of a standby letter of credit as security for contingent liabilities under certain workers’ compensation insurance policies.

The duration of these indemnities, commitments and guarantees varies, and in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation on the maximum amount of future payments the Company could be obligated to make. Historically, costs incurred to settle claims related to indemnities have not been material to the Company’s financial position, results of operations or cash flows. In addition, the Company believes the likelihood is remote that material payments will be required under the indemnities, commitments and guarantees described above. The fair value of indemnities, commitments and guarantees that the Company issued during the year ended December 31, 2011 was not material to the Company’s financial position, results of operations or cash flows.

Employment Contracts

The Company has entered into employment contracts with certain of the Company’s officers. These contracts generally provide for severance benefits, including salary continuation, if employment is terminated by the Company for convenience or by the officer for substantial cause. For the year ended December 31, 2011, the Company recognized $16,329,000 in severance benefits in connection with the Reorganization and Reinvestment Initiatives announced in June 2011 (see Note 3). In addition, in order to assure that the officers would continue to provide independent leadership consistent with the Company’s best interests in the event of an actual or threatened change in control of the Company, the contracts also generally provide for certain protections in the event of such a change in control. These protections include the payment of certain severance benefits, including salary continuation, upon the termination of employment following a change in control.

- Definition

The entire disclosure for commitments and contingencies.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Interpretation (FIN)
-Number 14
-Paragraph 3
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 9, 10, 11, 12
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.25)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 450
-SubTopic 20
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6952336&loc=d3e14435-108349

Reference 5: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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-Paragraph 8
-URI http://asc.fasb.org/extlink&oid=6398077&loc=d3e12565-110249

Reference 6: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6394976&loc=d3e25287-109308

Reference 7: http://www.xbrl.org/2003/role/presentationRef
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-Topic 825
-SubTopic 20
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6449706&loc=d3e16207-108621

+ Details

Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value of Financial Instruments

Note 18. Fair Value of Financial Instruments

The Company’s foreign currency exchange contracts are measured and reported on a fair value basis in accordance with ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosure about fair value measurements. ASC 820 enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC 820 requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market based inputs that are corroborated by market data

Level 3: Unobservable inputs that are not corroborated by market data

The following table summarizes the valuation of the Company’s foreign currency exchange contracts by the above pricing levels as of the valuation dates listed (in thousands):


	December 31, 2011				December 31, 2010
	Carrying Value		Observable market based inputs (Level 2)		Carrying Value		Observable market based inputs (Level 2)
Foreign currency derivative instruments—asset position	$	2,514	$	2,514	$	1,786	$	1,786
Foreign currency derivative instruments—liability position		3,746		3,746		11,775		11,775

The fair value of the Company’s foreign currency exchange contracts is determined based on observable inputs that are corroborated by market data. Foreign currency derivatives on the balance sheet are recorded at fair value with changes in fair value recorded in the statement of operations.

Nonrecurring Fair Value Measurements

The Company measures certain assets at fair value on a nonrecurring basis at least annually or when certain indicators are present. These assets include property, plant and equipment, goodwill and non-amortizing intangible assets that are written down to fair value when they are held for sale or determined to be impaired. During the years ended December 31, 2011 and 2010, certain non-amortizing intangible assets were written down to their implied fair value, resulting in impairment charges of $5,413,000 and $7,547,000, respectively (see Note 9). In addition, in 2011, the Company recognized an impairment charge of $1,120,000 related to goodwill of its Australian reporting unit (see Note 9). The implied fair values of the non-amortizing intangibles and goodwill were based on significant unobservable inputs, and as a result, the fair value measurements are classified as Level 3.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
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-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
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-Name Statement of Financial Accounting Standard (FAS)
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Reference 6: http://www.xbrl.org/2003/role/presentationRef
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-Name Statement of Financial Accounting Standard (FAS)
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-Paragraph 32, 33, 34
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 7: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Segment Information

12 Months Ended

Dec. 31, 2011

Segment Information

Note 19. Segment Information

The Company’s operating segments are organized on the basis of products and include golf clubs and golf balls. The golf clubs segment consists primarily of Callaway Golf and Top-Flite woods, hybrids, irons, wedges and putters as well as Odyssey putters, pre-owned clubs, GPS on-course range finders, other golf-related accessories and royalties from licensing of the Company’s trademarks and service marks. The golf balls segment consists primarily of Callaway Golf and Top-Flite golf balls that are designed, manufactured and sold by the Company. There are no significant intersegment transactions.

The table below contains information utilized by management to evaluate its operating segments.


	2011			2010			2009
	(In thousands)
Net sales
Golf Clubs⁽¹⁾	$	726,169		$	791,066		$	772,084
Golf Balls⁽¹⁾		160,359			176,590			178,715

	$	886,528		$	967,656		$	950,799

Loss before income tax
Golf Clubs^(1),(2),(3)	$	(3,899	)	$	39,176		$	34,502
Golf Balls^(1),(2),(3)		(12,655	)		2,559			(9,427	)
Reconciling items⁽⁴⁾		(73,707	)		(77,297	)		(54,678	)

	$	(90,261	)	$	(35,562	)	$	(29,603	)

Identifiable assets⁽⁵⁾⁽⁷⁾
Golf Clubs	$	409,074		$	438,002		$	406,835
Golf Balls⁽⁶⁾		92,280			122,147			129,796
Reconciling items⁽⁵⁾⁽⁷⁾		225,758			315,863			330,332

	$	727,112		$	876,012		$	866,963

Additions to long-lived assets
Golf Clubs	$	23,087		$	20,548		$	33,892
Golf Balls		6,680			2,023			3,315

	$	29,767		$	22,571		$	37,207

Goodwill
Golf Clubs	$	29,203		$	30,630		$	31,113
Golf Balls		—			—			—

	$	29,203		$	30,630		$	31,113

Depreciation and amortization
Golf Clubs	$	26,695		$	26,582		$	26,644
Golf Balls		11,941			14,367			14,104

	$	38,636		$	40,949		$	40,748

(1)	Certain prior period amounts have been reclassified to conform to the current year presentation.

(2)

The Company has been actively implementing certain initiatives targeted at improving gross margins (see Note 3). In connection with these initiatives, for the years ended December 31, 2011, 2010 and 2009, the Company incurred total pre-tax charges of $24,680,000, $14,816,000 and $6,156,000, respectively. Of these total charges, the Company’s golf clubs segment absorbed $15,552,000, $12,065,000 and $4,644,000, respectively, and the Company’s golf balls segment absorbed $5,038,000, $762,000 and $1,512,000, respectively.

(3)

In connection with the Company’s Reorganization and Reinvestment Initiatives (see Note 3), in 2011, the Company recognized pre-tax charges of $16,329,000, of which $5,642,000 and $1,329,000 were absorbed by the Company’s golf clubs and golf balls operating segments, respectively. In 2010 and 2009, the Company recognized total pre-tax charges of $3,973,000 and $5,174,000, respectively, in connection with certain workforce reductions. In connection with these reductions, the Company’s golf clubs segment absorbed pre-tax charges of $1,261,000 and $3,104,000 in 2010 and 2009, respectively, and the Company’s golf balls segment absorbed pre-tax charges of $243,000 and $894,000 in 2010 and 2009, respectively. Amounts included in corporate general and administrative expenses not allocated to the segments for the aforementioned initiatives totaled $9,358,000, $2,469,000 and $1,176,000 in 2011, 2010 and 2009, respectively.

(4)

Reconciling items represent the deduction of corporate general and administration expenses and other income (expenses), which are not utilized by management in determining segment profitability. These reconciling items include the following: (i) pre-tax impairment charges of $6,533,000 and $7,547,000 for 2011 and 2010, respectively, primarily related to certain trademarks and trade names (see Note 9), (ii) net losses of $8,153,000, $11,674,000, and $482,000 for 2011, 2010 and 2009, respectively, related to net realized and unrealized foreign currency hedging losses, offset by net foreign currency transaction gains included in other income (expense), and (iii) a pre-tax gain of $6,170,000 recognized in 2011 in connection with the sale of certain buildings (see Note 7).

(5)	Identifiable assets are comprised of net inventory, certain property, plant and equipment, intangible assets and goodwill. Reconciling items represent unallocated corporate assets not segregated between the two segments.

(6)	Includes property classified as available for sale in the amount of $1,500,000 in 2010 and $1,890,000 in 2009. Property held for sale represents the net book value of the golf ball manufacturing facility in Gloversville, New York. Property was sold in 2011 (see Note 7).

(7)

Total identifiable assets for 2010 and 2009 have been corrected from the amounts previously reported to reflect a decrease in net deferred tax assets relating to periods previously reported. This correction resulted in a $879,000 decrease to short-term net deferred tax assets, a $8,088,000 decrease to long-term net deferred tax assets and a decrease to shareholders’ equity of $8,967,000 (see Note 16).

The Company’s net sales by product category are as follows:


	Year Ended December 31,
	2011		2010⁽¹⁾		2009⁽¹⁾
	(In thousands)
Net sales
Drivers and Fairway Woods	$	212,901	$	225,227	$	223,168
Irons		207,790		223,875		232,684
Putters		88,831		106,246		98,305
Golf Balls		160,359		176,590		178,715
Accessories and Other		216,647		235,718		217,927

	$	886,528	$	967,656	$	950,799

(1)	Certain prior period amounts were reclassified to conform with the current year presentation.

The Company markets its products in the United States and internationally, with its principal international markets being Japan and Europe. The tables below contain information about the geographical areas in which the Company operates. Revenues are attributed to the location to which the product was shipped. Long-lived assets are based on location of domicile.


	Sales		Long-Lived Assets (excluding goodwill, intangible assets and deferred tax assets)
	(In thousands)
2011
United States	$	419,448	$	127,965
Europe		133,572		2,163
Japan		149,768		8,386
Rest of Asia		82,746		4,308
Other foreign countries		100,994		8,414

	$	886,528	$	151,236

2010
United States	$	468,214	$	140,623
Europe		130,106		1,633
Japan		164,810		8,635
Rest of Asia		89,455		4,231
Other foreign countries		115,071		7,416

	$	967,656	$	162,538

2009
United States	$	475,383	$	155,031
Europe		134,508		2,051
Japan		162,695		7,471
Rest of Asia		76,963		3,040
Other foreign countries		101,250		4,607

	$	950,799	$	172,200

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

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-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 131
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Transactions with Related Parties

12 Months Ended

Dec. 31, 2011

Transactions with Related Parties

Note 20. Transactions with Related Parties

The Callaway Golf Company Foundation (the “Foundation”) oversees and administers charitable giving for the Company and makes grants to carefully selected organizations. Officers of the Company also serve as directors of the Foundation and the Company’s employees provide accounting and administrative services for the Foundation. During 2011, 2010 and 2009, the Company did not make any contributions to the Foundation.

- Definition

The entire disclosure for related party transactions, including the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 4
-Section 08
-Paragraph k

Reference 2: http://www.xbrl.org/2003/role/presentationRef
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-Number 210
-Article 3A
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-Paragraph b

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+ Details

Summarized Quarterly Data (Unaudited)

12 Months Ended

Dec. 31, 2011

Summarized Quarterly Data (Unaudited)

Note 21. Summarized Quarterly Data (Unaudited)


	Fiscal Year 2011 Quarters
	1st		2nd			3rd			4th			Total
	(In thousands, except per share data)
Net sales	$	285,599	$	273,814		$	173,243		$	153,872		$	886,528
Gross profit	$	123,681	$	102,662		$	47,386		$	37,573		$	311,302
Net income (loss)⁽¹⁾^(2) (3)	$	12,818	$	(59,066	)	$	(62,587	)	$	(62,985	)	$	(171,820	)
Dividends on convertible preferred stock	$	2,625	$	2,625		$	2,625		$	2,625		$	10,500
Net income (loss) allocable to common shareholders⁽¹⁾ ^(2)(3)(4)	$	10,193	$	(61,691	)	$	(65,212	)	$	(65,610	)	$	(182,320	)
Earnings (loss) per common share⁽⁶⁾
Basic^(1)(2)(3)(4)	$	0.16	$	(0.96	)	$	(1.01	)	$	(1.01	)	$	(2.82	)
Diluted^(1)(2)(3)(4)	$	0.15	$	(0.96	)	$	(1.01	)	$	(1.01	)	$	(2.82	)


	Fiscal Year 2010 Quarters
	1st		2nd		3rd			4th			Total
	(In thousands, except per share data)
Net sales	$	302,875	$	303,609	$	175,644		$	185,528		$	967,656
Gross profit	$	137,295	$	123,626	$	49,051		$	55,524		$	365,496
Net income (loss)⁽⁵⁾	$	20,303	$	11,465	$	(18,317	)	$	(32,255	)	$	(18,804	)
Dividends on convertible preferred stock	$	2,625	$	2,625	$	2,625		$	2,625		$	10,500
Net income (loss) allocable to common shareholders⁽⁵⁾	$	17,678	$	8,840	$	(20,942	)	$	(34,880	)	$	(29,304	)
Earnings (loss) per common share⁽⁶⁾
Basic⁽⁵⁾	$	0.28	$	0.14	$	(0.33	)	$	(0.54	)	$	(0.46	)
Diluted⁽⁵⁾	$	0.24	$	0.14	$	(0.33	)	$	(0.54	)	$	(0.46	)

(1)

During the second quarter of 2011, the Company recognized $52,751,000 ($0.82 per share) of tax expense in order to establish a valuation allowance against its U.S. deferred tax assets. During the third and fourth quarters of 2011, in connection with the establishment of the valuation allowance, the Company recognized $12,237,000 ($0.19 per share) and $9,397,000 ($0.14 per share), respectively, of certain tax assets on intercompany profits (see Note 16).

(2)

Net loss and net loss allocable to common shareholders for the second quarter of 2011 have been corrected from the amounts previously reported to correct an overstatement in the valuation allowance related to deferred tax assets. As a result of this correction, net loss and net loss allocable to common shareholders were decreased by $4,498,000, and loss per common share decreased from $(1.03) per share to $(0.96) per share. This will be reflected in the interim condensed consolidated financial statements on the Company’s 2012 Quarterly Report on Form 10-Q.

(3)	During the first quarter of 2011, the Company recognized an after-tax gain of $3,924,000 ($0.05 per share) in connection with the sale of certain buildings (see Note 7).

(4)	During the second quarter of 2011, the Company recognized an after-tax impairment charge of $3,329,000 ($0.05 per share) related to certain trademarks and trade names (see Note 9).

(5)	During the fourth quarter of 2010, the Company recognized an after-tax impairment charge of $4,793,000 ($0.07 per share) related to certain trademarks and trade names (see Note 9).

(6)	Earnings per share is computed individually for each of the quarters presented; therefore, the sum of the quarterly earnings per share may not necessarily equal the total for the year.

- Definition

The entire disclosure for the quarterly financial data in the annual financial statements. The disclosure may include a tabular presentation of financial information for each fiscal quarter for the current and previous year, including revenues, gross profit, income or loss before extraordinary items and earnings per share data. It also includes an indication if the information in the note is unaudited, comments on the aggregate effect of year-end adjustments, and an explanation of matters or transactions that affect comparability or are pertinent to an understanding of the information furnished.

+ References + Details

Subsequent Event	12 Months Ended
Subsequent Event	Dec. 31, 2011
Subsequent Event	Note 22. Subsequent Event On February 16, 2012, the Company completed the sale of its Ben Hogan brand, which included all trademarks, service marks, and certain other intellectual property as well as license arrangements for apparel and accessories under the Ben Hogan brand name, for net proceeds of approximately $6,800,000. The sale resulted in a net gain of approximately $700,000.

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

12 Months Ended

Dec. 31, 2011

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II

CALLAWAY GOLF COMPANY

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 2011, 2010 and 2009


Date	Allowance for Sales Returns			Allowance for Doubtful Accounts
	(In thousands)
Balance, December 31, 2008	$	6,424		$	8,619
Provision		23,607			2,469
Write-off, disposals, costs and other, net		(24,306	)		(1,618	)

Balance, December 31, 2009		5,725			9,470
Provision		29,026			3,091
Write-off, disposals, costs and other, net		(29,796	)		(3,150	)

Balance, December 31, 2010		4,955			9,411
Provision		36,239			2,028
Write-off, disposals, costs and other, net		(34,673	)		(4,176	)

Balance, December 31, 2011	$	6,521		$	7,263