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Topgolf Callaway Brands (MODG) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This part provides the unaudited condensed consolidated financial information for the company, including statements, notes, and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of Topgolf Callaway Brands Corp. for the periods ended June 30, 2025, including balance sheets, statements of operations, comprehensive income, cash flows, and shareholders' equity, along with detailed notes explaining significant accounting policies, divestitures, revenue recognition, leases, financing, earnings per share, goodwill, investments, income taxes, commitments, share-based compensation, fair value measurements, derivatives, accumulated other comprehensive loss, segment information, and restructuring costs Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (June 30, 2025 vs. December 31, 2024) | ASSETS (in millions) | June 30, 2025 | December 31, 2024 | Change | | :------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $683.5 | $445.0 | +$238.5 | | Accounts receivable, net | $338.0 | $175.7 | +$162.3 | | Inventories | $608.9 | $757.3 | -$148.4 | | Total current assets | $1,881.3 | $1,600.7 | +$280.6 | | Property, plant and equipment, net | $2,224.4 | $2,219.0 | +$5.4 | | Trade names and trademarks | $1,110.6 | $1,303.9 | -$193.3 | | Goodwill | $619.9 | $620.2 | -$0.3 | | Total assets | $7,607.3 | $7,636.1 | -$28.8 | | LIABILITIES & EQUITY (in millions) | June 30, 2025 | December 31, 2024 | Change | | :------------------- | :------------ | :---------------- | :----- | | Accounts payable and accrued expenses | $379.2 | $451.3 | -$72.1 | | Convertible notes, net | $257.0 | $— | +$257.0 | | Total current liabilities | $1,015.7 | $825.9 | +$189.8 | | Long-term debt, net | $1,195.1 | $1,457.9 | -$262.8 | | Total liabilities and shareholders' equity | $7,607.3 | $7,636.1 | -$28.8 | Condensed Consolidated Statements of Operations This section presents the company's financial performance, including revenues, expenses, and net income for the three and six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Operations (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions, except per share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (6M) | | :--------------------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Total net revenues | $1,110.5 | $1,157.8 | -$47.3 (-4.1%) | $2,202.8 | $2,302.0 | -$99.2 (-4.3%) | | Total costs and expenses | $1,004.7 | $1,054.8 | -$50.1 (-4.7%) | $2,030.5 | $2,132.1 | -$101.6 (-4.8%) | | Income from operations | $105.8 | $103.0 | +$2.8 (+2.7%) | $172.3 | $169.9 | +$2.4 (+1.4%) | | Interest expense, net | $(58.7) | $(57.0) | -$1.7 (+3.0%) | $(116.7) | $(115.8) | -$0.9 (+0.8%) | | Other (expense) income, net | $(13.0) | $6.4 | -$19.4 (-303.1%) | $(9.9) | $9.8 | -$19.7 (-201.0%) | | Income before income taxes | $34.1 | $52.4 | -$18.3 (-34.9%) | $45.7 | $63.9 | -$18.2 (-28.5%) | | Income tax provision (benefit) | $13.8 | $(9.7) | +$23.5 | $23.3 | $(4.7) | +$28.0 | | Net income | $20.3 | $62.1 | -$41.8 (-67.3%) | $22.4 | $68.6 | -$46.2 (-67.3%) | | Basic EPS | $0.11 | $0.34 | -$0.23 | $0.12 | $0.37 | -$0.25 | | Diluted EPS | $0.11 | $0.32 | -$0.21 | $0.12 | $0.36 | -$0.24 | Condensed Consolidated Statements of Comprehensive Income This section presents the company's comprehensive income, including net income and other comprehensive income components for the three and six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Comprehensive Income (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (6M) | | :------------------------------------------ | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Net income | $20.3 | $62.1 | -$41.8 | $22.4 | $68.6 | -$46.2 | | Other comprehensive income: | | | | | | | | Change in derivative instruments | $(6.4) | $0.5 | -$6.9 | $(15.2) | $10.5 | -$25.7 | | Cumulative foreign currency translation adjustments recognized from dissolution of foreign subsidiary | $13.8 | $3.4 | +$10.4 | $13.8 | $3.4 | +$10.4 | | Foreign currency translation adjustments | $27.2 | $(3.5) | +$30.7 | $45.4 | $(17.7) | +$63.1 | | Comprehensive income, before income tax | $54.9 | $62.5 | -$7.6 | $66.4 | $64.8 | +$1.6 | | Income tax provision (benefit) on derivative instruments | $0.4 | $(2.1) | +$2.5 | $(3.3) | $(1.7) | -$1.6 | | Comprehensive income | $54.5 | $64.6 | -$10.1 | $69.7 | $66.5 | +$3.2 | Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, 2025 vs. 2024) | (in millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------- | | Net cash provided by operating activities | $41.7 | $151.4 | -$109.7 | | Net cash provided by (used in) investing activities | $140.3 | $(174.0) | +$314.3 | | Net cash provided by (used in) financing activities | $43.8 | $(52.3) | +$96.1 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $233.5 | $(81.7) | +$315.2 | | Cash, cash equivalents and restricted cash at end of period | $683.8 | $317.1 | +$366.7 | Condensed Consolidated Statements of Shareholders' Equity This section details changes in the company's shareholders' equity, including common stock, additional paid-in capital, and accumulated deficit from December 31, 2024, to June 30, 2025 Condensed Consolidated Statements of Shareholders' Equity (December 31, 2024 to June 30, 2025) | (in millions) | Balance at Dec 31, 2024 | Acquisition of treasury stock | Compensatory awards released from restriction | Share-based compensation | Equity adjustment from foreign currency translation | Change in fair value of derivative instruments, net of tax | Impact from dissolution of foreign subsidiaries | Net income | Balance at June 30, 2025 | | :------------------------------------------ | :---------------------- | :-------------------------- | :------------------------------------------ | :----------------------- | :------------------------------------------ | :------------------------------------------------------- | :------------------------------------------ | :--------- | :----------------------- | | Common Stock | $1.9 | — | — | — | — | — | — | — | $1.9 | | Additional Paid-in Capital | $3,032.8 | — | $(19.5) | $14.0 | — | — | — | — | $3,027.3 | | Accumulated Deficit | $(500.2) | — | — | — | — | — | — | $22.4 | $(477.8) | | Accumulated Other Comprehensive Loss | $(76.0) | — | — | — | $45.4 | $(11.9) | $13.8 | — | $(28.7) | | Treasury Stock | $(50.8) | $(3.3) | $19.5 | — | — | — | — | — | $(34.6) | | Total Shareholders' Equity | $2,407.7 | $(3.3) | — | $14.0 | $45.4 | $(11.9) | $13.8 | $22.4 | $2,488.1 | Notes to Condensed Consolidated Financial Statements This section provides explanatory notes to the condensed consolidated financial statements, detailing accounting policies, significant transactions, and financial instrument disclosures Note 1. The Company and Basis of Presentation This note describes Topgolf Callaway Brands Corp.'s business segments, its strategic intent to separate into two independent companies, and the recent divestiture of the Jack Wolfskin business - Topgolf Callaway Brands Corp. is a leading modern golf and active lifestyle company, operating through three segments: Topgolf (golf entertainment, Toptracer), Golf Equipment (Callaway Golf, Odyssey), and Active Lifestyle (Callaway, TravisMathew, OGIO)2728 - The Board of Directors intends to pursue a separation of the business into two independent companies: Callaway (golf equipment and active lifestyle) and Topgolf (venue-based golf entertainment), likely in 2026 after a new CEO is in place29137 - On May 31, 2025, the Company completed the sale of the Jack Wolfskin business for net proceeds of $290.0 million in cash3037 Note 2. Summary of Significant Accounting Policies This note outlines the significant accounting policies used in preparing the financial statements and discusses the evaluation of recently issued accounting standards - The financial statements are prepared in accordance with GAAP and SEC rules, with certain information condensed or omitted compared to annual reports, and interim results are not indicative of full-year performance31 - The Company is evaluating the impact of recently issued accounting standards: ASU 2024-04 (Induced Conversions of Convertible Debt Instruments) effective for fiscal years beginning after December 15, 2025, and ASU 2024-03 (Disaggregation of Income Statement Expenses) effective for fiscal years beginning after December 15, 20263536 Note 3. Divestitures This note details the completion of the Jack Wolfskin business sale, including the net proceeds received and the pre-tax loss recognized from the divestiture - The sale of the Jack Wolfskin business was completed on May 31, 2025, for $290.0 million in cash, net of cash retained and subject to adjustments37 - A pre-tax loss of $22.7 million was recognized in connection with the divestiture, including a $7.0 million impairment loss upon classification as held for sale and an additional $15.7 million loss upon sale, primarily from reclassification of cumulative translation adjustments3840 - The divestiture aligns with a strategic decision to increase focus and optimize resources in core businesses, with Jack Wolfskin's operating results included in the Active Lifestyle segment until the sale date39 Note 4. Revenue Recognition This note provides a breakdown of total net revenues by segment and major geographic region, along with licensing, royalty, and other income for the reported periods Total Net Revenues by Segment (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (6M) | | :---------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Topgolf | $485.3 | $494.4 | -$9.1 (-1.8%) | $879.0 | $917.2 | -$38.2 (-4.2%) | | Golf Equipment | $411.6 | $413.8 | -$2.2 (-0.5%) | $855.3 | $863.7 | -$8.4 (-1.0%) | | Active Lifestyle | $213.6 | $249.6 | -$36.0 (-14.4%) | $468.5 | $521.1 | -$52.6 (-10.1%) | | Total Consolidated | $1,110.5 | $1,157.8 | -$47.3 (-4.1%) | $2,202.8 | $2,302.0 | -$99.2 (-4.3%) | Revenue by Major Geographic Region (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (6M) | | :-------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | United States | $862.2 | $891.3 | -$29.1 (-3.3%) | $1,652.6 | $1,720.3 | -$67.7 (-3.9%) | | Europe | $105.3 | $114.1 | -$8.8 (-7.7%) | $235.4 | $255.5 | -$20.1 (-7.9%) | | Asia | $99.8 | $109.1 | -$9.3 (-8.5%) | $228.6 | $236.7 | -$8.1 (-3.4%) | | Rest of World | $43.2 | $43.3 | -$0.1 (-0.2%) | $86.2 | $89.5 | -$3.3 (-3.7%) | | Total Consolidated | $1,110.5 | $1,157.8 | -$47.3 (-4.1%) | $2,202.8 | $2,302.0 | -$99.2 (-4.3%) | Licensing, Royalty and Other Income (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (6M) | | :---------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Topgolf | $16.4 | $13.8 | +$2.6 (+18.8%) | $29.9 | $26.5 | +$3.4 (+12.8%) | | Active Lifestyle | $9.0 | $8.5 | +$0.5 (+5.9%) | $16.1 | $14.6 | +$1.5 (+10.3%) | | Total | $25.4 | $22.3 | +$3.1 (+13.9%) | $46.0 | $41.1 | +$4.9 (+11.9%) | Note 5. Leases This note discusses the company's lease arrangements, including a gain on lease termination, future lease obligations, and a breakdown of total lease costs - The Company recognized a $12.0 million gain on lease termination in Q1 2025 from an agreement with its Japanese subsidiary's landlord53 - As of June 30, 2025, minimum capital commitment for leases under construction was approximately $46.0 million, with $603.5 million of future lease obligations for five signed but uncommenced venues54 Total Lease Costs (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (6M) | | :---------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Operating lease costs | $40.9 | $45.4 | -$4.5 (-9.9%) | $86.0 | $90.5 | -$4.5 (-5.0%) | | Total financing lease costs | $6.7 | $5.7 | +$1.0 (+17.5%) | $13.4 | $11.9 | +$1.5 (+12.6%) | | Total DLF obligation costs | $39.3 | $34.2 | +$5.1 (+14.9%) | $78.3 | $67.2 | +$11.1 (+16.5%) | | Variable lease costs | $2.0 | $2.9 | -$0.9 (-31.0%) | $4.4 | $6.4 | -$2.0 (-31.3%) | | Total lease costs | $88.9 | $88.2 | +$0.7 (+0.8%) | $182.1 | $176.0 | +$6.1 (+3.5%) | Note 6. Financing Arrangements This note details the company's short-term credit facilities, long-term debt, and overall consolidated available liquidity as of June 30, 2025 Short-Term Credit Facilities (June 30, 2025 vs. December 31, 2024) | (in millions) | Maturity Date | Interest Rate | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------ | :-------------- | :---------------- | | 2023 ABL Credit Facility | March 16, 2028 | 5.81% | $— | $— | | 2025 Japan ABL Credit Facility | January 21, 2028 | 1.40% | $48.6 | $— | | 2022 Japan ABL Credit Facility | January 25, 2025 | 1.21% | $— | $25.4 | | Total Principal Amount | | | $48.6 | $25.4 | Long-Term Debt and Credit Facilities (June 30, 2025 vs. December 31, 2024) | (in millions) | Maturity Date | Interest Rate | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------ | :-------------- | :---------------- | | 2023 Term Loan B | March 16, 2030 | 7.33% | $1,171.9 | $1,178.1 | | Convertible Notes | May 1, 2026 | 2.75% | $258.3 | $258.3 | | Equipment Notes | July 24, 2025 - Dec 21, 2027 | 2.36% - 5.93% | $8.8 | $11.7 | | Mortgage Loans | July 1, 2033 - July 29, 2036 | 9.75% - 11.31% | $43.9 | $44.3 | | Financed Tenant Improvements | February 1, 2035 | 8.00% - 10.00% | $3.8 | $3.1 | | Total Principal Amount | | | $1,486.7 | $1,495.5 | - Consolidated available liquidity was $1,161.7 million as of June 30, 2025, an increase of $377.9 million compared to June 30, 202464196 Note 7. Earnings Per Common Share This note presents the basic and diluted earnings per common share calculations for the three and six months ended June 30, 2025 and 2024, including anti-dilutive securities Basic and Diluted EPS (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions, except per share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (basic) | $20.3 | $62.1 | $22.4 | $68.6 | | Weighted-average common shares outstanding—basic | 183.8 | 183.5 | 183.6 | 183.6 | | Basic EPS | $0.11 | $0.34 | $0.12 | $0.37 | | Net income (diluted) | $20.3 | $63.8 | $22.4 | $71.9 | | Weighted-average common shares outstanding—diluted | 185.1 | 199.6 | 184.3 | 199.4 | | Diluted EPS | $0.11 | $0.32 | $0.12 | $0.36 | - For the three and six months ended June 30, 2025, approximately 17.4 million and 17.6 million securities, respectively, were anti-dilutive and excluded from diluted EPS calculation76 Note 8. Goodwill and Intangible Assets This note outlines changes in goodwill by segment, accumulated impairment losses, and intangible asset amortization expense for the reported periods Changes in Goodwill by Segment (December 31, 2024 to June 30, 2025) | (in millions) | Golf Equipment | Active Lifestyle | Total | | :-------------------------- | :------------- | :--------------- | :---- | | Balance at December 31, 2024 | $530.3 | $89.9 | $620.2 | | Disposals (Jack Wolfskin) | — | $(1.5) | $(1.5) | | Foreign currency translation and other | $1.3 | $(0.1) | $1.2 | | Balance at June 30, 2025 | $531.6 | $88.3 | $619.9 | - Goodwill is net of accumulated impairment losses of $1,352.4 million, recorded prior to December 31, 2024, in the Topgolf segment77 - Intangible asset amortization expense for the three and six months ended June 30, 2025, was $1.8 million and $4.5 million, respectively, primarily in SG&A79 Note 9. Investments This note details the company's equity investments in Full Swing Golf Holdings, LLC and The Range NYC, LLC, along with other miscellaneous equity investments - The Company holds investments in Full Swing Golf Holdings, LLC ($9.3 million) and The Range NYC, LLC (Five Iron Golf) ($33.9 million) as of June 30, 2025 and December 31, 2024, accounted for at cost less impairments and adjusted for observable fair value changes8182 - Other miscellaneous equity investments totaled $6.1 million as of June 30, 2025, up from $5.2 million at December 31, 202483 Note 10. Selected Financial Data This note provides detailed breakdowns of inventories and property, plant, and equipment, net, along with total depreciation expense for the reported periods Inventories (June 30, 2025 vs. December 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Finished goods | $460.0 | $597.1 | | Work in process | $0.8 | $0.9 | | Raw materials | $140.7 | $152.0 | | Food and beverage | $7.4 | $7.3 | | Total inventories | $608.9 | $757.3 | Property, Plant and Equipment, Net (June 30, 2025 vs. December 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Land | $205.6 | $207.0 | | Buildings and leasehold improvements | $1,939.5 | $1,877.1 | | Machinery and equipment | $299.0 | $316.6 | | Furniture, computer hardware and equipment | $494.9 | $432.2 | | Internal-use software | $146.3 | $151.2 | | Production molds | $11.0 | $10.9 | | Construction-in-process | $147.2 | $102.5 | | Total property, plant, and equipment, gross | $3,243.5 | $3,097.5 | | Less: Accumulated depreciation | $1,019.1 | $878.5 | | Total property, plant, and equipment, net | $2,224.4 | $2,219.0 | - Total depreciation expense for the three and six months ended June 30, 2025, was $66.0 million and $132.4 million, respectively85 Note 11. Income Taxes This note presents the income tax provision, effective tax rate, and the gross liability for uncertain tax positions for the three and six months ended June 30, 2025 and 2024 Income Tax Provision and Effective Tax Rate (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions, except percentages) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax provision (benefit) | $13.8 | $(9.7) | $23.3 | $(4.7) | | Effective tax rate | 40.6% | (18.5)% | 51.0% | (7.4)% | - The increase in the effective tax rate for 2025 was primarily due to changes in forecasted book income, the mix of domestic and foreign earnings, and the impact of the Jack Wolfskin sale8889 - As of June 30, 2025, the gross liability for uncertain tax positions was $25.9 million, with $14.1 million potentially benefiting financial statements if favorably settled90 Note 12. Commitments & Contingencies This note discusses the company's routine legal claims and investigations, minimum future commitments, and capital commitments for Topgolf venues under construction - The Company is subject to routine legal claims and investigations, including intellectual property infringement claims, but historically these have not had a material adverse effect9394 Minimum Future Commitments (as of June 30, 2025) | (in millions) | Remainder of 2025 | 2026 | 2027 | 2028 | 2029 | Thereafter | Total | | :-------------------------- | :---------------- | :--- | :--- | :--- | :--- | :--------- | :---- | | Minimum obligation | $48.2 | $48.4 | $24.4 | $10.3 | $1.5 | $6.5 | $139.3 | - Minimum capital commitment for Topgolf venues under construction ($46.0 million) is not included in the table above96 Note 13. Share-Based Compensation This note provides details on share-based awards granted, including restricted stock units and performance-based awards, and the associated share-based compensation expense Share-Based Awards Granted (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions, except per share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Restricted stock units (Shares) | 0.2 | 0.1 | 2.4 | 1.1 | | Restricted stock units (Avg. grant date fair value per share) | $6.48 | $15.32 | $6.20 | $13.53 | | Performance based restricted share unit awards (Shares) | — | — | 1.7 | 1.0 | | Performance based restricted share unit awards (Avg. grant date fair value per share) | — | — | $8.57 | $19.01 | | Total Shares Granted | 0.2 | 0.1 | 4.1 | 2.1 | Share-Based Compensation Expense (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Share-based compensation expense, before tax | $7.0 | $7.0 | $14.0 | $21.2 | | Income tax benefit | $(1.7) | $(1.7) | $(3.4) | $(5.1) | | Share-based compensation expense, after tax | $5.3 | $5.3 | $10.6 | $16.1 | Note 14. Fair Value of Financial Instruments This note explains the company's fair value measurements for financial assets and liabilities using a three-level hierarchy and details the fair value of derivative instruments - The Company measures financial assets and liabilities at fair value using a three-level hierarchy, where cash, cash equivalents, and short-term liabilities are Level 1, and hedging instruments are Level 2100101103 Fair Value of Derivative Instruments (June 30, 2025 vs. December 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | Foreign currency forward contracts—asset position | $1.5 | $5.7 | | Foreign currency forward contracts—liability position | $(9.5) | $(1.0) | | Interest rate hedge agreements—asset position | $1.8 | $7.8 | | Interest rate hedge agreements—liability position | $(1.8) | $— | | Total | $(8.0) | $12.5 | - During Q1 2025, a $7.0 million impairment loss was recorded for the Jack Wolfskin business classified as held-for-sale, and an additional $15.7 million loss on sale was recognized upon completion of the sale106 Note 15. Derivatives and Hedging This note describes the company's use of foreign currency forward contracts and interest rate swap contracts for hedging purposes and their fair value and notional amounts - The Company uses foreign currency forward contracts and interest rate swap contracts as designated cash flow hedges and non-designated hedges to manage exposure to foreign currency exchange rates and variable interest rates, not for speculative purposes108109 Fair Value of Derivative Instruments (June 30, 2025 vs. December 31, 2024) | (in millions) | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | Total asset position | $3.3 | $13.5 | | Total liability position | $11.3 | $1.0 | - Notional amounts for cash flow hedging foreign currency forward contracts were $57.2 million (June 30, 2025) and $9.4 million (December 31, 2024)112 - Notional amount for interest rate swap contracts was $400.0 million for both periods114 - For the three and six months ended June 30, 2025, net foreign currency transaction gains of $14.7 million and $25.4 million, respectively, were recognized in other income (expense), net119 Note 16. Accumulated Other Comprehensive Loss This note provides a reconciliation of accumulated other comprehensive loss, detailing changes related to derivative instruments and foreign currency translation adjustments Accumulated Other Comprehensive Loss Reconciliation (December 31, 2024 to June 30, 2025) | (in millions) | Derivative Instruments | Foreign Currency Translation | Total | | :------------------------------------------ | :--------------------- | :--------------------------- | :---- | | Balance at December 31, 2024 | $7.0 | $(83.0) | $(76.0) | | Change in derivative instruments | $(13.6) | — | $(13.6) | | Net losses reclassified to cost of products | $0.6 | — | $0.6 | | Net gains reclassified to interest expense | $(2.2) | — | $(2.2) | | Income tax impact on derivative instruments | $3.3 | — | $3.3 | | Cumulative foreign currency translation adjustments reclassified into other income upon dissolution of foreign subsidiary | — | $13.8 | $13.8 | | Foreign currency translation adjustments | — | $45.4 | $45.4 | | Balance at June 30, 2025 | $(4.9) | $(23.8) | $(28.7) | Note 17. Segment Information This note provides financial information by operating segment, including net revenues, operating income, and depreciation and amortization for Topgolf, Golf Equipment, and Active Lifestyle - The Company operates in three segments: Topgolf (golf entertainment, Toptracer), Golf Equipment (golf clubs, golf balls), and Active Lifestyle (apparel, gear, accessories, including Jack Wolfskin until its sale)125 Segment Operating Income (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (6M) | | :---------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Topgolf | $55.4 | $56.1 | $(0.7) (-1.2%) | $43.5 | $59.0 | $(15.5) (-26.3%) | | Golf Equipment | $76.3 | $77.4 | $(1.1) (-1.4%) | $177.9 | $159.5 | +$18.4 (+11.5%) | | Active Lifestyle | $20.5 | $14.7 | +$5.8 (+39.5%) | $51.1 | $39.4 | +$11.7 (+29.7%) | | Total segment operating income | $152.2 | $148.2 | +$4.0 (+2.7%) | $272.5 | $257.9 | +$14.6 (+5.7%) | Total Depreciation and Amortization by Segment (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Topgolf | $54.2 | $52.5 | $109.2 | $104.9 | | Golf Equipment | $5.7 | $4.7 | $10.9 | $9.5 | | Active Lifestyle | $7.9 | $8.6 | $16.8 | $16.8 | | Total depreciation and amortization | $67.8 | $65.8 | $136.9 | $131.2 | Note 18. Restructuring and Separation Costs This note details costs associated with the 2023 Restructuring Plan and the ongoing Transformation Plan for the Topgolf separation, including expected total costs - The 2023 Restructuring Plan, completed in December 2024, aimed to improve organizational structure and operational efficiencies, with no costs incurred in Q2 2025130 - The Transformation Plan, initiated in September 2024 for the Topgolf separation, incurred $4.1 million in Q2 2025 and $11.8 million for the six months ended June 30, 2025, primarily for employee termination and PP&E disposals, with total costs expected to be $20.0-$30.0 million132133 Separation Costs (Three and Six Months Ended June 30, 2025) | (in millions) | 3 Months Ended June 30, 2025 | 6 Months Ended June 30, 2025 | | :---------------- | :--------------------------- | :--------------------------- | | Jack Wolfskin | $2.0 | $3.1 | | Topgolf | $4.5 | $7.1 | | Total Separation Costs | $6.5 | $10.2 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition for the three and six months ended June 30, 2025, discussing net revenues, operating segment results, economic conditions, and liquidity. It also includes reconciliations of GAAP to non-GAAP measures and details on the planned separation of Topgolf and the divestiture of Jack Wolfskin Intent to Separate into Two Independent Companies This section outlines the company's plan to separate into Callaway and Topgolf, aiming to enhance strategic focus and maximize shareholder value, with a spin-off likely in 2026 - The Company plans to separate into two independent entities: Callaway (golf equipment and active lifestyle) and Topgolf (venue-based golf entertainment), aiming to maximize shareholder value through enhanced strategic focus and optimized capital allocation137138 - The spin-off is most likely to occur in 2026, contingent on market conditions, regulatory approvals, and a new CEO for Topgolf137 Sale of Jack Wolfskin This section confirms the completion of the Jack Wolfskin business sale on May 31, 2025, for $290.0 million in cash, adjusted for net working capital - The sale of the Jack Wolfskin business was completed on May 31, 2025, for $290.0 million in cash, adjusted for net working capital139 Discussion of Non-GAAP Measures This section defines the non-GAAP financial measures used by the company, including constant currency net revenues and adjusted net income, and explains their purpose for decision-making and investor evaluation - Non-GAAP measures include constant currency net revenues, net income and diluted EPS excluding non-cash amortization of acquired intangibles, and net income and diluted EPS excluding certain non-cash and non-recurring charges140 - These non-GAAP measures are used for financial and operational decision-making and to evaluate underlying business performance, providing additional useful information for investors141 Operating Segments and Seasonality This section describes the seasonal revenue patterns for the Topgolf, Golf Equipment, and Active Lifestyle segments, influenced by new venue openings, product launches, and consumer demand - Topgolf segment revenues are seasonally higher in Q2 and Q3 due to spring/summer, with Q1 being the lowest, and revenue growth is driven by new venue openings and same venue sales145146 - Golf Equipment sales are seasonal, with new product launches in Q1 and initial sell-in continuing into Q2, leading to most profitability in the first half of the year148 - Active Lifestyle sales for Callaway Golf apparel follow golf equipment seasonality, while TravisMathew products are more evenly spread throughout the year due to their lifestyle focus, and Jack Wolfskin sales were historically concentrated in fall/winter149150 Current Economic Conditions This section discusses the impact of macroeconomic factors like inflation, high interest rates, tariffs, and foreign currency fluctuations on the company's demand, costs, and financial results - Demand for products and services, considered non-essential, is impacted by macroeconomic factors like sustained inflation and high interest rates, which put downward pressure on consumer and corporate discretionary spending152 - Increased tariffs and uncertainty regarding tariff levels may raise costs for products, components, and raw materials, potentially leading to price increases or decreased customer demand153 - Foreign currency fluctuations significantly impact financial results; a weaker U.S. dollar is positive, while a stronger U.S. dollar is negative, with a favorable impact of $8.6 million on international net revenues for Q2 2025, but an unfavorable impact of $0.3 million for the six months ended June 30, 2025154 Results of Operations This section analyzes the company's net revenues, segment operating income, costs and expenses, interest expense, and other income for the three and six months ended June 30, 2025 and 2024 Net Revenues and Segment Operating Income (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions, except percentages) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (6M) | | :--------------------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Total net revenues | $1,110.5 | $1,157.8 | -$47.3 (-4.1%) | $2,202.8 | $2,302.0 | -$99.2 (-4.3%) | | Topgolf Net Revenues | $485.3 | $494.4 | -$9.1 (-1.8%) | $879.0 | $917.2 | -$38.2 (-4.2%) | | Golf Equipment Net Revenues | $411.6 | $413.8 | -$2.2 (-0.5%) | $855.3 | $863.7 | -$8.4 (-1.0%) | | Active Lifestyle Net Revenues | $213.6 | $249.6 | -$36.0 (-14.4%) | $468.5 | $521.1 | -$52.6 (-10.1%) | | Topgolf Segment Operating Income | $55.4 | $56.1 | -$0.7 (-1.2%) | $43.5 | $59.0 | -$15.5 (-26.3%) | | Golf Equipment Segment Operating Income | $76.3 | $77.4 | -$1.1 (-1.4%) | $177.9 | $159.5 | +$18.4 (+11.5%) | | Active Lifestyle Segment Operating Income | $20.5 | $14.7 | +$5.8 (+39.5%) | $51.1 | $39.4 | +$11.7 (+29.7%) | | Total operating income | $105.8 | $103.0 | +$2.8 (+2.7%) | $172.3 | $169.9 | +$2.4 (+1.4%) | - Topgolf net revenues decreased due to lower same venue sales from walk-ins, reservations, and a weaker events business, partially offset by new venue openings, and segment operating income also decreased159160 - Golf Equipment net revenues decreased due to competitive launch timing, and segment operating income decreased in Q2 2025 due to lower revenue, tariffs, and unfavorable foreign currency, but increased for the six months due to higher gross margins, favorable pricing/product mix, cost savings, and a lease termination incentive161162 - Active Lifestyle net revenues decreased primarily due to the Jack Wolfskin sale and soft market conditions, while segment operating income increased due to reduced operating expenses from the Jack Wolfskin sale and operational leverage improvements from cost reduction efforts163164 Costs and Expenses (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions, except percentages) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (6M) | | :--------------------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Cost of products | $354.5 | $375.4 | -$20.9 (-5.6%) | $740.2 | $788.3 | -$48.1 (-6.1%) | | Cost of services, excluding depreciation and amortization | $50.4 | $50.7 | -$0.3 (-0.6%) | $89.5 | $92.3 | -$2.8 (-3.0%) | | Other venue expense | $336.4 | $339.4 | -$3.0 (-0.9%) | $657.6 | $662.8 | -$5.2 (-0.8%) | | Selling, general and administrative expense | $241.8 | $259.5 | -$17.7 (-6.8%) | $499.7 | $532.5 | -$32.8 (-6.2%) | | Research and development expense | $19.8 | $27.0 | -$7.2 (-26.7%) | $41.1 | $50.2 | -$9.1 (-18.1%) | | Venue pre-opening costs | $1.8 | $2.8 | -$1.0 (-35.7%) | $2.4 | $6.0 | -$3.6 (-60.0%) | | Total costs and expenses | $1,004.7 | $1,054.8 | -$50.1 (-4.7%) | $2,030.5 | $2,132.1 | -$101.6 (-4.8%) | - SG&A expenses decreased due to the Jack Wolfskin sale, cost reduction efforts in selling and marketing, a lease termination gain, and lower employee costs, partially offset by a loss on the Jack Wolfskin sale177178179 - Research and development expenses decreased due to the sale of the WGT business, reduced headcount from restructuring, and prior-year asset impairment charges related to the Shankstars game180 - Venue pre-opening costs decreased due to fewer planned venue openings in 2025181 Other Income and Expenses (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions, except percentages) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (6M) | | :--------------------------------- | :--------------------------- | :--------------------------- | :-------------- | :--------------------------- | :--------------------------- | :-------------- | | Interest expense, net | $(58.7) | $(57.0) | $(1.7) (+3.0%) | $(116.7) | $(115.8) | $(0.9) (+0.8%) | | Other income, net | $(13.0) | $6.4 | $(19.4) (n/m) | $(9.9) | $9.8 | $(19.7) (n/m) | - Other income, net, decreased significantly due to increased net losses on foreign currency transactions, the loss on the Jack Wolfskin sale, and non-recurrence of prior-year dividend income from Full Swing, partially offset by money market dividends183184 Income Tax Provision and Effective Tax Rate (Three and Six Months Ended June 30, 2025 vs. 2024) | (in millions, except percentages) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax provision (benefit) | $13.8 | $(9.7) | $23.3 | $(4.7) | | Effective tax rate | 40.6% | (18.5)% | 51.0% | (7.4)% | Net Income, Diluted Earnings Per Share and Reconciliation of Non-GAAP Measures This section reconciles GAAP net income and diluted EPS to non-GAAP measures, explaining the key factors contributing to changes in profitability for the reported periods GAAP vs. Non-GAAP Net Income and Diluted EPS (Three Months Ended June 30, 2025 vs. 2024) | (in millions, except per share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | | GAAP Net Income | $20.3 | $62.1 | | Non-cash amortization of acquired intangibles | $(1.3) | $(2.2) | | Non-recurring items | $(24.0) | $(18.8) | | Non-GAAP Net Income | $45.6 | $83.1 | | GAAP Diluted EPS | $0.11 | $0.32 | | Non-GAAP Diluted EPS | $0.24 | $0.42 | - GAAP net income decreased by $41.8 million for Q2 2025, primarily due to increased income tax provision, loss on Jack Wolfskin sale, and foreign currency hedging losses, partially offset by Active Lifestyle segment operating income increase187 GAAP vs. Non-GAAP Net Income and Diluted EPS (Six Months Ended June 30, 2025 vs. 2024) | (in millions, except per share data) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | | GAAP Net Income | $22.4 | $68.6 | | Non-cash amortization of acquired intangibles | $(3.5) | $(4.4) | | Non-recurring items | $(40.0) | $(24.5) | | Non-GAAP Net Income | $65.9 | $97.5 | | GAAP Diluted EPS | $0.12 | $0.36 | | Non-GAAP Diluted EPS | $0.35 | $0.51 | - GAAP net income decreased by $46.2 million for the six months ended June 30, 2025, mainly due to increased income tax provision, loss on Jack Wolfskin sale, Topgolf separation charges, and foreign currency hedging losses, partially offset by increased segment operating income in Golf Equipment and Active Lifestyle189 Financial Condition This section reviews the company's financial condition, focusing on changes in cash and cash equivalents, accounts receivable, and inventory as of June 30, 2025 - Cash and cash equivalents, including restricted cash, increased by $233.5 million to $683.8 million at June 30, 2025, primarily from investing activities (Jack Wolfskin sale proceeds), financing activities, and operating activities191 - Consolidated net accounts receivable increased to $338.0 million at June 30, 2025, from $175.7 million at December 31, 2024, reflecting golf equipment sales seasonality192 - Inventory decreased by $148.4 million to $608.9 million at June 30, 2025, compared to December 31, 2024, due to seasonality and the Jack Wolfskin sale193 Liquidity and Capital Resources This section assesses the company's liquidity, including available cash, credit facilities, and operational cash flows, and details significant cash obligations and estimated capital expenditures - The Company believes existing cash, operational cash flows, and credit facilities are adequate to fund operations, capital expenditures, debt repayments, and contractual obligations for at least the next 12 months194 - As of June 30, 2025, total liquidity (cash + credit facility availability) was $1,161.7 million, an increase of $377.9 million YoY196 Significant Cash Obligations (as of June 30, 2025) | (in millions) | Total | Remainder of 2025 | 2026 - 2027 | 2028 - 2029 | Thereafter | | :------------------------------------------ | :---- | :---------------- | :---------- | :---------- | :--------- | | Long-term debt | $1,486.7 | $9.1 | $292.0 | $27.7 | $1,157.9 | | Interest payments relating to long-term debt | $455.6 | $50.0 | $185.3 | $178.6 | $41.7 | | Finance leases, including imputed interest | $887.6 | $7.2 | $36.5 | $37.9 | $806.0 | | Operating leases, including imputed interest | $2,258.6 | $67.8 | $309.9 | $310.3 | $1,570.6 | | DLF obligations | $5,040.1 | $41.6 | $203.6 | $211.7 | $4,583.2 | | Minimum lease payments for leases signed but not yet commenced | $613.5 | $1.1 | $29.1 | $29.4 | $553.9 | | Capital commitments | $46.0 | $43.0 | $3.0 | $— | $— | | Unconditional purchase obligations | $129.3 | $48.2 | $71.2 | $9.9 | $— | | Uncertain tax contingencies | $9.6 | $0.3 | $0.5 | $0.1 | $8.7 | | Total | $10,927.0 | $268.3 | $1,131.1 | $805.6 | $8,722.0 | - Total estimated capital expenditures for FY2025 are approximately $165.0 million, with $50.0 million for core business and $115.0 million for Topgolf203 Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risks, primarily from foreign currency exchange rates and interest rates, and its strategies using derivative financial instruments to mitigate these risks. It also includes a sensitivity analysis for potential losses from these exposures and addresses inflation risk Foreign Currency Fluctuations This section addresses the company's exposure to foreign currency exchange rate fluctuations and its use of forward contracts for mitigation, including a sensitivity analysis of potential losses - The Company uses foreign currency forward contracts to mitigate exposure to foreign currency exchange rate fluctuations205206 - A sensitivity analysis estimates a potential loss of $24.6 million from foreign currency forward contracts at June 30, 2025, assuming a 10% unfavorable movement in foreign currencies, which would be partially offset by underlying hedged transactions207208 Interest Rate Fluctuations This section discusses the company's interest rate risk from variable-rate debt, mitigation strategies using swap contracts, and a sensitivity analysis of incremental expense from rate increases - The Company is exposed to interest rate risk from variable-rate credit facilities and long-term debt, which is mitigated by interest rate swap contracts210 - A sensitivity analysis indicates that a 10% increase in interest rates would result in an incremental expense of $3.7 million over the 12-month period ended June 30, 2025210 Inflation This section highlights the impact of sustained inflationary pressure on product and operating costs, noting the potential inability to fully offset these costs through price increases - Sustained inflationary pressure has increased product and operating costs, and the Company may not be able to fully offset these costs through price increases, potentially harming cash flows and operating results211 Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of June 30, 2025, based on an evaluation by management, including the CEO and CFO. It also states that there were no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025212 - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025213 PART II. OTHER INFORMATION This part presents additional information, including legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, other information, and a list of exhibits Item 1. Legal Proceedings This section refers to Note 12 "Commitments & Contingencies" for information on legal proceedings, indicating that the Company is subject to routine legal claims and investigations, which historically have not had a material adverse effect on its financial position or results of operations - Information on legal proceedings is incorporated by reference from Note 12, which states that routine legal claims and investigations have not historically had a material adverse effect21694 Item 1A. Risk Factors This section states that there are no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, and advises investors to consider these factors - No material changes to the risk factors from the Annual Report on Form 10-K for the year ended December 31, 2024217 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activities, including the 2022 Repurchase Program and shares withheld for payroll tax obligations, with minimal repurchases in Q2 2025 - The Board of Directors authorized a $100.0 million share repurchase program in May 2022, which remains in effect218 Share Purchases (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Weighted Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Dollar Value that May Yet Be Purchased Under the Program | | :-------------------------- | :------------------------------- | :------------------------------------ | :----------------------------------------------------------- | :------------------------------------------------------------ | | April 1, 2025 - April 30, 2025 | — | $— | — | $35,528,182 | | May 1, 2025 - May 31, 2025 | 2,004 | $6.19 | — | $35,528,182 | | June 1, 2025 - June 30, 2025 | 7,477 | $6.25 | — | $35,528,182 | | Total | 9,481 | $6.24 | — | $35,528,182 | - During Q2 2025, the Company repurchased less than 0.1 million shares for $0.1 million, related to shares withheld for payroll tax withholding obligations, not under the 2022 Repurchase Program220 Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reported period - No defaults upon senior securities were reported221 Item 4. Mine Safety Disclosures This section states that there were no mine safety disclosures during the reported period - No mine safety disclosures were reported222 Item 5. Other Information This section confirms that no officers or directors adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No officers or directors adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2025223 Item 6. Exhibits This section lists the exhibits filed with the report, including agreements related to the Jack Wolfskin sale, credit facility amendments, certifications, and XBRL documents - The report includes a list of exhibits filed, such as the Sale & Purchase Agreement for Jack Wolfskin, amendments to credit facilities, certifications, and XBRL documents226