CALY · Read the filing

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements, the related notes and the section “Important Notice to Investors Regarding Forward-Looking Statements” that appear herein. This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions related to 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 1, 2022.

Critical Accounting Estimates

The Company’s discussion and analysis of its results of operations, financial condition and liquidity are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, shareholders’ equity, revenues and expenses, as well as related disclosures of contingent assets and liabilities. The Company bases its estimates and assumptions on historical experience and other assumptions that management believes are reasonable under the circumstances at that time. Actual results may materially differ from these estimates under different assumptions or circumstances. The Company reviews its estimates on an ongoing basis to ensure that its estimates appropriately reflect changes in its business and new information as it becomes available.

Management believes the critical accounting estimates discussed below affect its more significant estimates and assumptions used in the preparation of its consolidated financial statements. For a complete discussion of all of the Company’s significant accounting policies, see Note 2. “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in this Form 10-K.

Sales Programs

The amount of revenue the Company recognizes is based on the amount of consideration it ultimately expects to receive from customers, which involves certain estimates and assumptions, including estimates for sales returns as well as sales programs, sales promotions and price concessions. These estimates are based on amounts earned by the Company or expected to be claimed by customers on the related sales.

Sell-through promotions are short-term sales programs that are generally offered throughout the product’s life cycle, which is approximately two years. Price reductions and price concessions are generally offered at the end of the product’s life cycle. The Company calculates an estimated rate related to these programs that is based on a combination of historical and forecasted data. The Company records a reduction to net revenues using this rate at the time of the sale and monitors this rate against actual results and forecasted estimates. Adjustments to the rate are made as necessary in order to reflect the amount of consideration the Company expects to receive from its customers. If the actual variable consideration is significantly different than the accrued estimates, the Company may be exposed to adjustments to revenue that could be material. Assuming there had been a 10% increase in the rate used to record sales program incentives, income before taxes for the year ended December 31, 2022 would have decreased by approximately $2.8 million.

The Company records an estimate for anticipated returns at the time the sale is recognized. This estimate is based on historical returns data as well as current economic trends, changes in customer demands and the sell-through of products. If the actual sales returns are significantly different than the recorded estimated amount, the Company may be exposed to losses or gains that could be material. Assuming there had been a 10% increase over the recorded estimated sales returns reserve for the year ended December 31, 2022, pre-tax income would have decreased by approximately $5.5 million, net of the cost recovery of inventory.

Excess and Obsolescence Reserves

Inventories are recorded at the lower of cost or net realizable value, which includes a reserve for excess, obsolete and/or unmarketable inventory. The Company estimates the reserve 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. In addition, the Company considers inventory aging, forecasted consumer demand and pricing, regulatory (USGA and R&A) rule changes, the promotional environment and technological obsolescence, all of which requires management to make assumptions and apply significant judgment.

If these estimates are inaccurate or change, the Company may need to increase its inventory reserve, which could significantly impact operating results. Assuming there had been a 10% increase in the reserve for the year ended December 31, 2022, pre-tax income would have decreased by approximately $1.8 million.

Leases

The Company enters into complex build-to-suit arrangements in connection with its Company-operated venues operations which often results in the Company controlling the underlying ground that the venue is built on, the building, or both during the construction period. Under these arrangements, the construction terms, financing and eventual lease are agreed to prior to the construction period. In most cases, the construction is financed by a third-party real estate financing partner (the legal owner of the property). During the construction period, when the Company is deemed to be in control of the underlying assets, the Company records the asset as if owned and a corresponding construction advance. Once the construction is completed, the Company applies sale-lease back criteria to determine if control of the underlying assets is then transferred to the legal owner or whether the Company remains the accounting owner of the leased assets for accounting purposes. If control does not pass to the legal owner, it is considered a failed sale, and the assets are not derecognized while a deemed landlord finance (“DLF”) liability is recognized. If control passes to the legal owner, it is considered a sale, and the assets are derecognized, and a gain or loss is recognized based on the fair value of the asset. The fair value is determined on the basis of the price that would be received to sell the asset in an orderly transaction between market participants, which is derived from real estate broker valuations and market comparatives. An operating lease is recognized upon leasing back the assets from the legal owner.

The lease term for the ground lease and/or building lease for those properties controlled by the Company during the construction period depends on multiple factors, including the probability that the Company will exercise any renewal options beyond the initial lease term. When applicable, the Company uses historical practices and market trends to assess whether it is reasonably certain to exercise the renewal option. In certain Company-operated venues, the Company leases the underlying land from an independent third-party, with the Company assessing the lease classification as either an operating lease or finance lease on the basis of the relevant contract assumptions such as lease term and related payments. The Company must reassess the lease term upon the occurrence of certain discrete events that are in the control of the lessee (e.g., installing significant leasehold improvements) or if there is a lease modification. This lease term reassessment may impact the recorded right-of-use assets and lease classification, which could be material.

Impairment of Goodwill and Intangible Assets

The Company evaluates the recoverability of its goodwill and indefinite-lived intangible assets at least annually or more frequently whenever indicators are present that the carrying amounts of these assets may not be fully recoverable. To determine fair value, the Company uses cash flow estimates discounted at an appropriate rate, quoted market prices, royalty rates when available and independent appraisals as appropriate. Any required impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value and is recorded as a reduction in the carrying value of the asset and a charge to earnings. The Company uses its best judgment based on current facts and circumstances related to its business when making these estimates. However, if actual results are not consistent with the Company’s estimates and assumptions used in calculating future cash flows and asset fair values, the Company may be exposed to impairment losses that could be material.

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 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 is deemed to be more likely than not that some or all of the deferred tax assets 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, and are based on the Company’s best judgment at the time made based on current and projected circumstances and conditions. For further information, see Note 12. “Income Taxes” in the Notes to Consolidated Financial Statements in this Form 10-K.

The Company accrues 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 in income tax expense, 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. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. For further information, see Note 12. “Income Taxes”.

Business Combinations

The Company is required to make significant estimates and assumptions to determine the fair value of tangible and intangible assets acquired and liabilities assumed at the acquisition date, as well as the estimated useful life of those acquired intangible assets. Intangible assets may include the acquired company’s trade name, existing customer relationships, developed technology, patents and goodwill. Significant estimates and assumptions used to value intangible assets include expected future revenues, growth rates, cash flows and discount rates. In addition, significant estimates and assumptions are used in determining uncertain tax positions and valuation allowances, as well as the fair value of equity awards assumed. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 2 “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in this Form 10-K, which is incorporated herein by this reference.

Discussion of Non-GAAP Measures

In addition to the financial results contained in this report, which have been prepared and presented in accordance with GAAP, the Company has also included supplemental information concerning the Company’s financial results on a non-GAAP basis. This non-GAAP information includes the following:

•A constant currency measure on net revenues in order to demonstrate the impact of fluctuations from foreign currencies on these results. This information represents an estimate for comparative purposes and is calculated by taking current period local currency results and translating them into U.S. dollars based on the foreign currency exchange rates for the applicable comparable prior period.

•Net income (loss) and diluted earnings (loss) per share excluding certain non-cash and non-recurring charges, as further detailed below.

The Company has included in this report information to reconcile this non-GAAP information to the most directly comparable GAAP information. The non-GAAP information presented in this report should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP and may also be inconsistent with the manner in which similar measures are derived or used by other companies. Management uses such non-GAAP information for financial and operational decision-making purposes and as a means to evaluate period over period comparisons of the underlying performance of its business and in forecasting the Company’s business going forward. Management believes that the presentation of such non-GAAP information, when considered in conjunction with the most directly comparable GAAP information, provides additional useful comparative information for investors in their assessment of the underlying performance of the Company’s business.

Current Economic Conditions

A significant portion of the Company’s business is conducted outside of the United States in currencies other than the U.S. dollar. As a result, changes in foreign currency rates can have a significant effect on the Company’s financial results. The Company enters into foreign currency forward contracts to mitigate the effects of changes in foreign currency rates. While these foreign currency forward contracts can mitigate the effects of changes in foreign currency rates in the short-term, they do not eliminate those effects, which can be significant, and they do not mitigate their effects over the long-term. These effects include (i) the translation of results denominated in foreign currency into U.S. dollars for reporting purposes, (ii) the mark-to-market adjustments of certain intercompany balance sheet accounts denominated in foreign currencies and (iii) the mark-to-market adjustments of the Company’s foreign currency forward contracts. In general, the Company’s overall financial results are affected positively by a weaker U.S. dollar and are affected negatively by a stronger U.S. dollar as compared to the foreign currencies in which the Company conducts its business. Fluctuations in foreign currencies had an unfavorable impact on international net revenues of $148.1 million for the year ended December 31, 2022, relative to the same period in the prior year. The Company anticipates that changes in foreign currencies will continue to have a significant unfavorable impact on net revenues and operating results for 2023.

The recent increase in inflation partially contributed to the increase in the cost of the Company’s products as well as operating costs. While the Company was generally able to offset these inflationary pressures by increasing the price of its products and services, the length and severity of these conditions are unpredictable, and should conditions persist and/or worsen, such inflationary pressures may have an adverse effect on the Company’s operating expenses. Further, the Company may not be able to offset these increased costs through price increases. As a result, the Company’s cash flows and results of operations could be adversely affected.

During most of 2022, the Company experienced extended lead times on inventory shipments due to significant port delays and container shortages domestically and internationally. As a result, the Company planned its inventory purchases around these increased in-transit times in order to meet the increased demand for its golf equipment and apparel products, as well as manage supplier capacity by pulling-forward inventory orders in order to prepare for upcoming product launches. However, during the third quarter, in-transit times improved and many of the inventory orders the Company made were received earlier than planned, creating an increase in inventory levels in the second half of 2022 compared to the same period in 2021, which were unusually low due to inventory shortages caused by supply chain constraints. A majority of the inventory shipments received during the second half of 2022 were for 2023 products, therefore the Company anticipated continued higher inventory levels going into 2023. The Company believes the quality of its inventory is good and that it will be well positioned going into the 2023 golf season.

Segment and Related Information

The Company’s products and brands are reported under three operating segments: Topgolf, which includes the operations of the Company’s Topgolf business; Golf Equipment, which includes the operations of the Company’s golf clubs and golf balls business; and Active Lifestyle, which includes the operations of the Company’s soft goods business marketed under the Callaway, TravisMathew, Jack Wolfskin and OGIO brand names. For further detail related to the Company’s operating segments, products and seasonality, see “Part I, Item 1. Business - Overview” in this Form 10-K.

Results of Operations

Years Ended December 31, 2022 and 2021

Net Revenues

The Company’s net revenues for the year ended December 31, 2022 increased $862.3 million (27.5%) to $3,995.7 million compared to $3,133.4 million for the year ended December 31, 2021. The increase reflects strong revenue performance in all three of the Company’s operating segments across all major geographic regions. This revenue growth was achieved despite a significant unfavorable foreign currency exchange impact of $148.1 million, primarily related to the Company’s business operations in Europe and Asia. In addition, 2022 includes a full year of revenue related to Topgolf compared to ten months in 2021 due to the timing of the merger. Net revenues by operating segment and major geographic region are presented below. For further information related to the Company’s operating segments see, “Operating Segment Results” below.

Net revenues by operating segment (in millions, except percentages):

Year Ended December 31, Increase/(Decrease) Non - GAAP Constant Currency Growth

Net revenues:

Net revenues by major geographic region (in millions, except percentages):

Year Ended December 31, Increase/(Decrease) Non-GAAPConstant Currency Growth

Net revenues:

United States

Net revenues in the United States are comprised of net revenues from the Company’s Topgolf, Golf Equipment, and Active Lifestyle operating segments. During the year ended December 31, 2022, the Company’s net revenues in the United States increased $730.9 million (35.4%) compared to the year ended December 31, 2021. The increase was primarily due to growth in the Topgolf business combined with an additional two months of revenue due to the timing of the merger in 2021, in addition to continued strong demand for Golf Equipment products and Active Lifestyle products, which was primarily attributable to the expansion and brand momentum of the TravisMathew business.

Europe

Net revenues in Europe are comprised of revenues from the Company’s Golf Equipment, Active Lifestyle and Topgolf operating segments. During the year ended December 31, 2022, net revenues in Europe increased $37.9 million (7.6%) compared to the year ended December 31, 2021. The increase was primarily driven by strong revenue performance in the Jack Wolfskin apparel business as well as the Topgolf business, which also includes an incremental two months of sales due to the timing of the merger in 2021. Fluctuations in foreign currency exchange rates had an unfavorable impact on the Company’s net revenues in Europe of $72.1 million. On a constant currency basis, the Company’s net revenues in Europe increased by 22.0%.

Asia

Net revenues in Asia are comprised of revenues from the Company’s Golf Equipment and Active Lifestyle operating segments. During the year ended December 31, 2022, net revenues in Asia increased $79.9 million (17.2%) compared to the year ended December 31, 2021. The increase was primarily related to continued strong demand for golf equipment products, in addition to an increase in apparel sales driven primarily by the addition of the Korea apparel business in the third quarter of 2021. Foreign currency exchange rates had a $70.9 million unfavorable impact on the Company’s net revenues in Asia, primarily related to sales in Japan and Korea. On a constant currency basis, the Company’s net revenues in Asia increased by 32.4%.

Rest of World

Net revenues in Rest of World are primarily comprised of revenues from the Company’s Golf Equipment and Active Lifestyle operating segments in Canada, Australia, and Latin America. During the year ended December 31, 2022, net revenues in Rest of World increased $13.6 million (13.4%) compared to the year ended December 31, 2021. The increase was primarily driven by continued strong demand for golf equipment and apparel products. Foreign currency exchange rates had a $5.1 million unfavorable impact on the Company’s net revenues in the Rest of World regions, primarily in Australia and Canada. On a constant currency basis, the Company’s net revenues for Rest of World increased by 18.5%.

Costs and Expenses (in millions, except percentages)

Year Ended December 31, Increase/(Decrease)

Costs and expenses:

Cost of Products

The Company’s cost of products is comprised primarily of material and component costs, distribution and warehousing costs, overhead expenses as well as retail merchandise costs, which also includes products sold in retail shops within Topgolf venue facilities. Historically, over 85% of the Company’s manufacturing costs, which are primarily material and component costs, are variable in nature and fluctuate with sales volumes. Variable costs for the Company’s Golf Equipment segment range between 85% to 95% for golf club products and 70% to 80% for golf ball products. Variable costs for soft goods in the Active Lifestyle operating segment are generally greater than 85%. Generally, the relative significance of the components of cost of products do not vary materially from these percentages from period to period.

During the year ended December 31, 2022, cost of products increased $264.0 million (23.2%) to $1,400.6 million compared to $1,136.6 million for the year ended December 31, 2021. The increase was primarily attributable to the variable nature of the Company’s cost of products which was commensurate with the significant increase in sales volumes during 2022, as compared to the same period in 2021. In addition to the overall increase directly related to sales volumes, the Company also experienced an overall increase in commodity and input costs related to the manufacture and distribution of its products, including significant increases in freight and labor costs, as well as the negative impacts of inflationary pressures throughout the year.

Cost of Services, Excluding Depreciation and Amortization

Cost of services, excluding depreciation and amortization, consist primarily of the cost of food and beverage sold at Topgolf venues, as well as certain costs associated with licensing the Company’s Toptracer ball-flight tracking technology. The cost of services at Topgolf are largely variable in nature. During the year ended December 31, 2022, cost of services, excluding depreciation and amortization, increased $50.5 million (37.8%), to 184.0 million, compared to $133.5 million for the year ended December 31, 2021. The increase was primarily due to additional Topgolf venues added throughout 2022, in addition to an incremental two months of costs incurred during 2022, due to the timing of the Topgolf merger in 2021.

Other Venue Expense

Other venue expense consists of depreciation and amortization, employee costs, rent, utilities, and other costs associated with Topgolf venues. During the year ended December 31, 2022, other venue expense increased $345.4 million (47.2%), to $1,076.9 million, compared to $731.5 million for the year ended December 31, 2021. The increase was primarily due to additional Topgolf venues added throughout 2022, in addition to an incremental two months of expenses incurred during 2022 due to the timing of the Topgolf merger in 2021.

Selling, General and Administrative Expense

Selling, general and administrative expense increased by $120.9 million (14.2%) to $970.6 million during the year ended December 31, 2022, compared to $849.7 million for the year ended December 31, 2021. The increase was primarily to support the continued growth and expansion of the business, which includes increases in employee costs related to increased headcount across all of the Company’s businesses, professional fees, including fees associated with the implementation of new IT systems at various subsidiaries of the Company, marketing and promotional expense and travel and entertainment. In addition, the increase reflects an incremental two months of selling, general and administrative expense recognized at Topgolf during 2022 due to the timing of the merger in 2021.

Research and Development Expense

Research and development expense increased $8.4 million (12.4%) to $76.4 million during the year ended December 31, 2022, compared to $68.0 million for the year ended December 31, 2021. The increase was primarily due to an increase in employee costs resulting from increased headcount.

Venue Pre-Opening Costs

Venue pre-opening costs consist of costs associated with activities prior to the opening of new Company-operated Topgolf venues, as well as other costs that are not considered in the evaluation of ongoing venue performance. Venue pre-opening costs are variable in nature and fluctuate based on the timing of an anticipated venue opening date, as well as the size and location of a particular Company-operated venue. The Company expects to continue to incur venue pre-opening costs as it continues to expand its operations and open Company-operated Topgolf venues domestically and internationally. Venue pre-opening costs increased $21.0 million (223.4%) to $30.4 million during the year ended December 31, 2022, compared to $9.4 million for the year ended December 31, 2021. The increase was primarily due to an increase in the number of venues constructed throughout 2022, and under construction as of December 31, 2022, as compared to the same period in 2021, in addition to two months of incremental expense incurred during 2022 due to the timing of the Topgolf merger in 2021.

Other Income and Expense (in millions)

Year Ended December 31, Increase/(Decrease)

Other income and expenses:

Total other (expense) income, net decreased by $260.8 million (178.8%) to other expense of $114.9 million during the year ended December 31, 2022, compared to other income of $145.9 million during the year ended December 31, 2021. The decrease was primarily due to the recognition of a $252.5 million non-cash gain in 2021 related to the fair-value write-up of the Company’s pre-merger shares of Topgolf in connection with the merger, in addition to an increase of $27.2 million (23.5%) in interest expense, primarily due to additional deemed landlord financing lease obligations related to the construction of new Topgolf venues combined with an additional two months of interest expense related to Topgolf debt obligations due to the timing of the merger in 2021. These increases were partially offset by an $18.9 million (210.0%) increase in other income related to net gains on foreign currency hedging contracts offset by foreign currency transaction losses.

Income Taxes

The Company’s provision for income taxes decreased $44.6 million to an income tax benefit of $16.0 million in 2022, compared to an income tax provision of $28.6 million in 2021. The Company’s effective tax rate as a percentage of pre-tax income for 2022 decreased to (11.3%) compared to 8.2% in 2021. The Company’s effective tax rate for 2022 was impacted by the release of valuation allowances on the Company’s United States deferred tax assets. The Company’s effective tax rate in 2021 was impacted by the nontaxable gain recognized on the Company’s pre-merger investment in Topgolf shares as well as the recognition of a valuation allowance on certain net operating losses and tax credits. For further discussion, see Note 12. “Income Taxes” in the Notes to Consolidated Financial Statements in this Form 10-K.

Net Income (Loss)

Net Income

Net income for the year ended December 31, 2022 decreased $164.1 million (51.0%) to $157.9 million compared to net income of $322.0 million for the year ended December 31, 2021. The decrease was primarily due to the recognition of a $252.5 million gain in 2021 related to the non-cash fair-value write-up of the Company’s pre-merger investment in Topgolf, partially offset by a $52.1 million (25.5%) increase in income from operations, combined with the recognition of a $16.0 million tax benefit for the year ended December 31, 2022 compared to a tax provision of $28.6 million for the year ended December 31, 2021. Diluted earnings per common share decreased $1.00 to $0.82 on 201.3 million diluted shares outstanding for the year ended December 31, 2022 compared to $1.82 on 176.9 million shares outstanding for the year ended December 31, 2021. The increased share count for the year ended December 31, 2022 reflects the addition of 14.7 million common shares as the result of the adoption of ASU 2020-06 on January 1, 2022, which required the application of the if-converted method to calculate the dilutive effect from the Company’s convertible notes.

Non-GAAP Net Income Reconciliation and Diluted Earnings Per Share

On a non-GAAP basis, excluding the impacts of the items described in the table below, the Company’s net income and diluted earnings per share for the year ended December 31, 2022 would have been $158.2 million and $0.82 per share, respectively, compared to $137.9 million and $0.78 per share, respectively, for the year ended December 31, 2021.

The tables below present a reconciliation of the Company’s results under GAAP and non-GAAP measures (in millions, except per share information):

Operating Segment Results for the Years Ended December 31, 2022 and 2021 (in millions,except percentages)

Net revenues:

Segment operating income:

Topgolf

Topgolf net revenues increased by $461.4 million (42.4%) for the year ended December 31, 2022 compared to the year ended December 31, 2021. This increase was primarily driven by the opening of 11 new Company-owned and operated Topgolf venues throughout 2022, as well as an increase in same venue sales for existing venues. The increase in same venue sales was primarily due to a balanced increase between walk-in traffic at the venues and price increases, in addition to strong performance in Topgolf’s corporate and social events business. In addition, during 2022, the Company recognized a full 12 month period of Topgolf revenues, compared to only ten months during the year ended 2021, which was due to the closing of the merger on March 8, 2021. The increase in segment operating income of $18.6 million (32.0%) primarily reflects the increase in revenue, partially offset by an increase in pre-opening costs due to the opening of new venues in 2022, combined with a planned increase in marketing spend.

Golf Equipment

Golf Equipment net revenues increased by $177.4 million (14.4%) for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily driven by strong demand for golf ball products, including the 2022 Chrome Soft line of golf balls, as well as packaged sets due to increased supply. The increase was additionally due to continued strong demand across all golf club product categories, primarily from the core golf consumer base, combined with additional supply capacity and inventory fill-in at retail. Golf Equipment segment operating income increased $47.5 million (23.3%) compared to the year ended December 31, 2021. The increase was due to increases in sales volume and average selling prices, which outpaced higher input and freight costs and unfavorable foreign exchange rate impacts.

Active Lifestyle

Active Lifestyle net revenues increased by $223.5 million (27.4%) for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase reflects strong performance across all brands within the Company’s Active Lifestyle portfolio and was primarily driven by continued brand momentum at TravisMathew. Increased sales at Jack Wolfskin as well as growth in the Korea apparel business which launched in July 2021 also contributed to the overall increase in Active Lifestyle net revenues. Active Lifestyle segment operating income increased $8.9 million (13.0%) compared to the year ended December 31, 2021. The increase reflects continued momentum in the business, which outpaced the unfavorable impact of foreign currency rates.

Financial Condition

The Company’s cash and cash equivalents decreased $172.0 million to $180.2 million at December 31, 2022 from $352.2 million at December 31, 2021. This decrease was primarily related to cash used in investing activities of $535.1 million and cash used in operating activities of $35.1 million, partially offset by cash provided by financing activities of $425.3 million. During the 12 months ended December 31, 2022, the Company used its existing cash and cash equivalents, as well as net proceeds from borrowings on its long-term debt and credit facilities, and proceeds from lease financings, to fund its operations and for the development of Topgolf venues and other capital expenditures, for the purchase of inventory, and repurchase shares of its common stock. The Company believes that its existing funds combined with cash expected to be generated from its operating activities, existing sources of and access to capital and any future financings, as necessary, are adequate to fund the Company’s future operations. For further information related to the Company’s financing arrangements, see Note 7. “Financing Arrangements” in the Notes to Consolidated Financial Statements in Part IV, Item 15 and “Liquidity and Capital Resources” in Part II, Item 7 of this Form 10-K.

The Company’s accounts receivable balance fluctuates throughout the year as a result of the general seasonality of the Company’s business and is also affected by the timing of new product launches. With respect to the Company’s Golf Equipment business, accounts receivable will generally be highest during the first and second quarters, primarily due to the seasonal peak in the golf industry, and will generally decline significantly during the third and fourth quarters as a result of an increase in cash collections and lower sales. The Company’s Active Lifestyle accounts receivable balances are generally higher during the third and fourth quarters, primarily due to the seasonal nature of the Jack Wolfskin business, whose products are significantly geared towards the fall and winter seasons. Topgolf primarily records revenue and collects payment at point-of-sale for most of its venue business. Therefore, Topgolf’s accounts receivable balance is smaller than the Company’s other business segments and primarily consists of media sponsorship receivables. As of December 31, 2022, the Company’s net accounts receivable increased $62.0 million to $167.3 million from $105.3 million as of December 31, 2021. The increase is primarily due to increases in the fourth quarter of Active Lifestyle and Golf Equipment sales.

The Company’s inventory balance fluctuates throughout the year as a result of the general seasonality of the Company’s business and is also affected by the timing of new product launches. With respect to the Company’s Golf Equipment business, the buildup of inventory generally begins during the fourth quarter and continues into the first quarter and beginning of the second quarter in order to meet increased demand during the height of the golf season. Inventory levels are also impacted by the timing of new product launches as well as the success of new products. Active Lifestyle inventory levels start to increase during the second quarter and continue to increase into the third and fourth quarters primarily due to the seasonal nature of the Company’s Jack Wolfskin business, whose products are significantly geared towards the fall and winter seasons. Topgolf is primarily a services business with lower inventory balances than the Company’s other operating segments, with the inventory balances primarily consisting of food and beverage as well as retail merchandise and Toptracer inventory. The Company’s inventory increased $425.7 million to $959.2 million as of December 31, 2022 compared to $533.5 million as of December 31, 2021. These increases were primarily driven by the timing of inventory receipts, which occurred earlier than anticipated due to shortened lead times on inventory shipments. Additionally, inventory levels were constrained throughout 2021 due to supply chain disruptions which caused shortages.

Liquidity and Capital Resources

Liquidity

The Company’s principal sources of liquidity consist of its existing cash balances, funds expected to be generated from operations and funds from its credit facilities. Based upon the Company’s current cash balances, its estimates of funds expected to be generated from operations, as well as from current and projected availability under its current or future credit facilities, the Company believes that it will be able to finance current and planned operating requirements, capital expenditures, required debt repayments and contractual obligations and commercial commitments for at least the next 12 months from the issuance date of this Form 10-K.

The Company’s ability to generate sufficient positive cash flows from operations is subject to many risks and uncertainties, including future economic trends and conditions, demand for the Company’s products, supply chain challenges, price inflation, foreign currency exchange rates, and other risks and uncertainties applicable to the Company and its business (see “Risk Factors” contained in Part I, Item 1A in this Form 10-K). As of December 31, 2022, the Company had $415.3 million in cash and availability under its credit facilities, which is a decrease of $337.5 million or 44.8% compared to December 31, 2021. Information about the Company’s credit facilities and long-term borrowings is presented in Note 7. “Financing Arrangements” in the Notes to Consolidated Financial Statements in this Form 10-K and is incorporated herein by this reference.

As of December 31, 2022, approximately 75% of the Company’s cash was held in regions outside of the United States. The Company continues to maintain its indefinite reinvestment assertion with respect to most jurisdictions in which it operates because of local cash requirements to operate its business. If the Company were to repatriate cash to the United States outside of settling intercompany balances, it may need to pay incremental foreign withholding taxes which, subject to certain limitations, generate foreign tax credits for use against the Company’s U.S. tax liability, if any. Additionally, the Company may need to pay certain state income taxes.

Significant Cash Obligations

The Company plans to utilize its liquidity (as described above) and its cash flows from business operations to fund its material cash requirements. The table below summarizes certain significant cash obligations as of December 31, 2022 that will affect the Company’s future liquidity (in millions):

Payments Due By Period

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 or trademarks, (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 or 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 made contractual commitments to each of its officers and certain other employees providing for severance payments upon the termination of employment. The Company has also issued guarantees in the form of a standby letter of credit in the amount of $0.4 million as security for contingent liabilities related to import and export duties and fees, as well as employee tax withholding.

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 payments under the commitments and guarantees described above will have a material effect on the Company’s financial condition. The fair value of these indemnities, commitments and guarantees that the Company issued during the 12 months ended December 31, 2022 was not material to the Company’s financial position, results of operations or cash flows.

In addition to the contractual obligations listed above, the Company’s liquidity could also be adversely affected by an unfavorable outcome with respect to claims and litigation that the Company is subject to from time to time. See Note 13. “Commitments & Contingencies” in the Notes to Consolidated Financial Statements in this Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company uses derivative financial instruments to mitigate its exposure to changes in foreign currency exchange rates and interest rates. Transactions involving these financial instruments are with creditworthy banks, primarily banks that are party to the Company’s credit facilities (see Note 7. “Financing Arrangements” and Note 18. “Derivatives and Hedging” in the Notes to Consolidated Financial Statements in this Form 10-K). The use of these instruments exposes the Company to market and credit risk which may at times be concentrated with certain counterparties, although counterparty nonperformance is not anticipated.

Foreign Currency Fluctuations

Information about the Company’s foreign currency hedging activities is set forth in Note 18. “Derivatives and Hedging” in the Notes to Consolidated Financial Statements in this Form 10-K, which is incorporated herein by this reference.

As part of the Company’s risk management procedure, a sensitivity analysis model is used to measure the potential loss in future earnings of market-sensitive instruments resulting from one or more selected hypothetical changes in interest rates or foreign currency values. The sensitivity analysis model quantifies the estimated potential effect of unfavorable movements of 10% in foreign currencies to which the Company was exposed at December 31, 2022 through its foreign currency forward contracts.

At December 31, 2022, the estimated maximum loss from the Company’s foreign currency forward contracts, calculated using the sensitivity analysis model described above, was $58.8 million. The Company believes that such a hypothetical loss from its foreign currency forward contracts would be partially offset by increases in the value of the underlying transactions being hedged.

The sensitivity analysis model is a risk analysis tool and does not purport to represent actual losses in earnings that will be incurred by the Company, nor does it consider the potential effect of favorable changes in market rates. It also does not represent the maximum possible loss that may occur. Actual future gains and losses will differ from those estimated because of changes or differences in market rates and interrelationships, hedging instruments and hedge percentages, timing and other factors.

Interest Rate Fluctuations

The Company is exposed to interest rate risk from its credit facilities and long-term borrowing commitments. Outstanding borrowings under these credit facilities and long-term borrowing commitments accrue interest as described in Note 7 “Financing Arrangements” in the Notes to Consolidated Financial Statements in this Form 10-K. The Company’s long-term borrowing commitments are subject to interest rate fluctuations, which could be material to the Company’s cash flows and results of operations. In order to mitigate this risk, the Company enters into interest rate hedges as part of its interest rate risk management strategy. Information about the Company’s interest rate hedges is provided in Note 18. “Derivatives and Hedging” in the Notes to Consolidated Financial Statements in this Form 10-K. In order to determine the impact of unfavorable changes in interest rates on the Company’s cash flows and results of operations, the Company performed a sensitivity analysis as part of its risk management procedures. The sensitivity analysis quantified that the incremental expense incurred by a 10% increase in interest rates would be $1.3 million over the 12-month period ending on December 31, 2022.

Inflation

The Company’s products, employee costs, and other costs have been subject to, and we expect will continue to be subject to, significant inflationary pressures. Such inflationary pressures have had, and may continue to have, an adverse effect on the Company’s ability to maintain current levels of gross margin and selling, general and administrative expenses. Further, the Company may not be able to offset these increased costs through price increases. As a result, the Company’s inability to quickly respond to inflation could harm its cash flows and results of operations in the future.

Item 8. Financial Statements and Supplementary Data

The Company’s Consolidated Financial Statements as of December 31, 2022 and 2021 and for each of the three years in the period ended December 31, 2022, together with the report of the Company’s independent registered public accounting firm, are included in this Annual Report on Form 10-K beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness, as of December 31, 2022, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2022.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in its report entitled Internal Control—Integrated Framework (2013). Based on that assessment, management concluded that as of December 31, 2022, the Company’s internal control over financial reporting was effective based on the COSO criteria.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by Deloitte & Touche LLP, the Company’s independent registered public accounting firm, as stated in its report which is included herein.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2022, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Topgolf Callaway Brands Corp.

Carlsbad, California

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Topgolf Callaway Brands Corp. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 28, 2023, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Costa Mesa, California

February 28, 2023

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Certain information concerning the Company’s executive officers is included under the caption “Information About the Company’s Executive Officers” following Part I, Item 1 of this Form 10-K. The other information required by Item 10 will be included in the Company’s definitive Proxy Statement under the captions “Proposal No. 1 - Election of Directors,” “Delinquent Section 16(a) Reports” and “Board of Directors and Corporate Governance,” to be filed with the Commission within 120 days after the end of calendar year 2022 pursuant to Regulation 14A, which information is incorporated herein by this reference.

Item 11. Executive Compensation

The Company maintains employee benefit plans and programs in which its executive officers are participants. Copies of certain of these plans and programs are set forth or incorporated by reference as Exhibits to this report. Information required by Item 11 will be included in the Company’s definitive Proxy Statement under the captions “Executive Officer Compensation,” “Executive Officer Compensation - Compensation Committee Report” and “Board of Directors and Corporate Governance,” to be filed with the Commission within 120 days after the end of calendar year 2022 pursuant to Regulation 14A, which information is incorporated herein by this reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by Item 12 will be included in the Company’s definitive Proxy Statement under the caption “Beneficial Ownership of the Company’s Securities,” to be filed with the Commission within 120 days after the end of calendar year 2022 pursuant to Regulation 14A, which information is incorporated herein by this reference.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information about the number of stock options and shares underlying restricted stock units and performance share units outstanding and authorized for issuance under all equity compensation plans of the Company as of December 31, 2022. See Note 15. “Stock Plans and Share-Based Compensation” in the Notes to Consolidated Financial Statements in this Form 10-K for further discussion of the equity plans of the Company.

Equity Compensation Plan Information

(in millions, except dollar amounts)

Equity Compensation Plans Approved by Shareholders 3.0 (3) $ 6.52 16.1 (4)

Equity Compensation Plans Not Approved by Shareholders(5) 0.5 (6) — —

Item 13. Certain Relationships, Related Transactions and Director Independence

The information required by Item 13 will be included in the Company’s definitive Proxy Statement under the captions “Transactions with Related Persons” and “Board of Directors and Corporate Governance,” to be filed with the Commission within 120 days after the end of calendar year 2022 pursuant to Regulation 14A, which information is incorporated herein by this reference.

Item 14. Principal Accountant Fees and Services

The information included in Item 14 will be included in the Company’s definitive Proxy Statement under the caption “Information Concerning Independent Registered Public Accounting Firm” to be filed with the Commission within 120 days after the end of calendar year 2022 pursuant to Regulation 14A, which information is incorporated herein by this reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

Documents filed as part of this report:

1. Financial Statements. The following consolidated financial statements of Topgolf Callaway Brands and its subsidiaries required to be filed pursuant to Part II, Item 8 of this Form 10-K, are included in this Annual Report on Form 10-K beginning on page F-1:

•Report of Independent Registered Public Accounting Firm;

•Consolidated Balance Sheets as of December 31, 2022 and 2021;

•Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020;

•Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020;

•Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020;

•Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022, 2021 and 2020; and

•Notes to Consolidated Financial Statements.

2. Financial statement schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto.

3. Exhibits.

A copy of any of the following exhibits will be furnished to any beneficial owner of the Company’s common stock, or any person from whom the Company solicits a proxy, upon written request and payment of the Company’s reasonable expenses in furnishing any such exhibit. All such requests should be directed to the Company’s Investor Relations Department at Topgolf Callaway Brands Corp., 2180 Rutherford Road, Carlsbad, CA 92008.

Executive Compensation Contracts/Plans

Other Contracts

21.1 List of Subsidiaries.†

23.1 Consent of Deloitte & Touche LLP.†

24.1 Limited Power of Attorney.†

____________

† Included in this report

Item 16. Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TOPGOLF CALLAWAY BRANDS CORP.

By: /s/ OLIVER G. BREWER III

Oliver G. Brewer III

President and Chief Executive Officer

Date: February 28, 2023

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and as of the dates indicated.

Signature Title Dated as of

Principal Executive Officer:

Oliver G. Brewer III

Principal Financial Officer:

Brian P. Lynch

Principal Accounting Officer:

Jennifer Thomas

Non-Management Directors:

* Vice Chairman of the Board February 28, 2023

Erik J Anderson

Samuel H. Armacost

Scott H. Baxter

Thomas G. Dundon

Laura J. Flanagan

Russell L. Fleischer

Bavan M. Holloway

* Chairman of the Board February 28, 2023

John F. Lundgren

Scott M. Marimow

Adebayo O. Ogunlesi

Varsha R. Rao

Linda B. Segre

Anthony S. Thornley

*By: /s/ BRIAN P. LYNCH

Brian P. Lynch

Attorney-in-fact

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) F-65

Consolidated Balance Sheets as of December 31, 2022 and 2021 F-5

Notes to Consolidated Financial Statements F-10

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Topgolf Callaway Brands Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Topgolf Callaway Brands Corp. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 3 to the financial statements, the Company changed its method of accounting for convertible debt effective January 1, 2022, due to the adoption of Accounting Standards Update, 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, using the modified retrospective approach.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Venue Lease Classification under ASC 842 — Refer to Notes 2 and 4 to the financial statements

Critical Audit Matter Description

When the Company identifies a location for a new Topgolf venue, it will either directly lease or purchase the land from the land’s legal owner. In scenarios in which the land is purchased, the Company will sell the land to a third-party financing partner and subsequently enter into a lease agreement with the third-party for the use of the both the land and building. Under these build-to-suit arrangements, the construction terms, financing and eventual lease are agreed to prior to the construction period. In certain cases, it is determined that the Company controls the use of the underlying land that the venue is built on during the construction period, resulting in it being deemed in control of the building that is being constructed in accordance with Accounting Standards Codification (ASC) 842-40. As a result, the Company records the construction-in-process and a corresponding financial liability for the consideration received from the financing partner (i.e., referred to as deemed landlord financing obligation or “DLF” by the Company). Once the construction is completed, the Company applies the ASC 840-40 sale-lease back criteria, which involves evaluating the terms of the leaseback and assessing lease classification, for the purpose

of determining if control of the building is transferred to the legal owner or if the Company remains the deemed accounting owner of such assets for accounting purposes. If control does not pass to the legal owner, it is considered a failed sale, and the assets and the financial liability that were recognized during the construction period remains on the Company’s balance sheet. If control passes to the legal owner, it is considered a successful sale, and the building and corresponding deemed landlord financing obligation are derecognized, with a gain or loss recognized based on difference between the carrying amount of the building and financial liability. The Company then recognizes an operating lease for the leaseback in accordance with ASC 842-20. In scenarios in which the Company directly leases the land and facility from the third-party or is not determined to be in control of the building during the construction process, lease classification will be assessed as of the lease commencement date. At December 31, 2022, the deemed landlord financing (“DLF”) obligations were $660.4 million.

We identified lease classification for Topgolf venue leases as a critical audit matter due to the complex accounting considerations involved with the Company’s leasing arrangements. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, to audit and evaluate these inputs.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the classification of new Topgolf obligations related to leasing activities included the following, among others:

•We obtained an understanding and evaluated the design and operating effectiveness of internal controls in respect of the Company’s lease accounting evaluation.

•We selected a sample of lease obligations and performed the following:

◦Obtained and inspected the underlying agreements and evaluated the structure and terms of the agreements to determine if sale and leaseback guidance was applicable.

◦Based on the terms and structure of the agreement, evaluated whether the transaction resulted in a sale-lease back or a failed sale.

◦For all selected leases, evaluated the Company’s classification determination by independently assessing each of the lease classification criteria as outlined within ASC 842 used to determine operating versus finance classification.

◦Involved professionals in our firm having expertise in fair value measurements to evaluate the Company’s inputs for test (d) of the lease classification calculation.

Deferred Income Tax Valuation Allowance – Refer to Notes 2 and 12 to the Financial Statements

Critical Audit Matter Description

The Company is subject to income tax in the U.S. and foreign jurisdictions, and deferred tax assets and liabilities result from temporary differences between the financial reporting and tax bases of assets and liabilities. As described in Note 12 to the consolidated financial statements, the Company has gross deferred tax assets of $892.6 million and net deferred tax liabilities of $101.4 million, inclusive of a valuation allowance of $100.2 million as of December 31, 2022. The valuation of the Company’s deferred tax assets requires a significant amount of judgment, including estimates of future taxable income and the ability to utilize net operating losses (“NOLs”) and tax credits to offset future taxable income.

Given the significant judgements by management when interpreting and applying complex tax laws and regulations as well as Accounting Standard Codification Topic No. 740, Income Taxes, our audit procedures to assess the valuation allowance recorded against the Company’s deferred tax assets required a high degree of auditor judgment and an increased extent of audit effort, including the need to involve our income tax specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures performed related to the valuation allowance recorded against deferred tax assets included the following, among others:

•We tested the effectiveness of controls over deferred tax assets and liabilities, including management’s controls over the estimates of future taxable income and the determination of whether it is more likely than not that deferred tax assets will be realized.

•We assessed the reasonableness of the methods, assumptions, and judgments used by management to determine the valuation allowance.

•We tested the valuation allowances recorded by evaluating management conclusions on the realizability of the deferred tax assets.

•We involved professionals in our firm having expertise in accounting for income taxes.

/s/ DELOITTE & TOUCHE LLP

Costa Mesa, California

February 28, 2023

We have served as the Company’s auditor since 2002.

TOPGOLF CALLAWAY BRANDS CORP.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

December,

ASSETS

Current assets:

Cash and cash equivalents $ 180.2 $ 352.2

Operating lease right-of-use assets, net 1,419.1 1,384.5

Other intangible assets, net 91.0 103.4

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses $ 580.0 $ 491.2

Accrued employee compensation and benefits 135.2 128.9

Asset-based credit facilities 219.3 9.1

Operating lease liabilities, short-term 76.4 72.3

Construction advances 35.4 22.9

Other current liabilities 35.0 47.7

Operating lease liabilities, long-term 1,437.5 1,385.4

Deemed landlord financing obligations, long-term 658.0 460.6

Commitments and contingencies (Note 13)

Shareholders’ equity:

Accumulated other comprehensive loss (61.5) (27.3)

Total liabilities and shareholders’ equity $ 8,590.4 $ 7,747.8

The accompanying notes are an integral part of these consolidated financial statements.

F-5

TOPGOLF CALLAWAY BRANDS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

Year Ended December 31,

Net revenues:

Costs and expenses:

Cost of services, excluding depreciation and amortization 184.0 133.5 —

Selling, general and administrative expense 970.6 849.7 542.5

Research and development expense 76.4 68.0 46.3

Goodwill and trade name impairment — — 174.3

Venue pre-opening costs 30.4 9.4 —

Gain on Topgolf investment — 252.5 —

Income tax (benefit) provision (16.0) 28.6 (0.6)

Earnings (loss) per common share:

Weighted-average common shares outstanding:

The accompanying notes are an integral part of these consolidated financial statements.

F-6

TOPGOLF CALLAWAY BRANDS CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

Year Ended December 31,

Other comprehensive income (loss):

Change in derivative instruments 13.0 10.0 (12.7)

Foreign currency translation adjustments (44.7) (29.2) 25.7

Income tax provision (benefit) on derivative instruments 2.5 1.6 (2.9)

The accompanying notes are an integral part of these consolidated financial statements.

F-7

TOPGOLF CALLAWAY BRANDS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

Year Ended December 31,

Cash flows from operating activities:

Amortization of debt discount and issuance costs 9.8 19.3 10.5

Gain on Topgolf investment — (252.5) —

Gain on conversion of note receivable — — (1.3)

Unrealized net losses on hedging instruments and foreign currency 17.5 0.3 2.8

Acquisition costs — (16.2) —

Change in assets and liabilities, net of effect from acquisitions:

Leasing receivables (22.2) (22.9) —

Accounts payable and accrued expenses 110.4 96.8 (11.5)

Accrued employee compensation and benefits 7.6 53.8 (16.6)

Payments on operating leases (86.7) (57.4) (29.4)

Income taxes receivable/payable, net (11.4) 8.8 2.0

Other liabilities 0.5 (2.5) 5.3

Net cash (used in) provided by operating activities (35.1) 278.3 228.2

Cash flows from investing activities:

Cash acquired in merger — 171.3 —

Investment in golf-related ventures — (30.0) (20.0)

Acquisition of intangible assets (3.2) — —

Proceeds from sale of investment in golf-related ventures 0.4 19.1 —

Net cash used in investing activities (535.1) (161.9) (59.2)

Cash flows from financing activities:

Proceeds from borrowings on long-term debt 176.8 26.2 37.7

Proceeds from (repayments of) credit facilities, net 213.0 (13.1) (122.5)

Proceeds from issuance of convertible notes — — 258.8

Premium paid for capped call confirmations — — (31.8)

Debt issuance cost (0.2) (5.4) (9.0)

Payment on contingent earn-out obligation (5.6) (3.6) —

Repayments of financing leases (2.7) (0.8) (0.8)

Proceeds from lease financing 175.7 89.2 —

Exercise of stock options 0.7 22.3 0.2

Dividends paid — — (1.9)

Acquisition of treasury stock (35.8) (38.2) (22.2)

Net cash provided by (used in) financing activities 425.3 (124.1) 96.1

Cash, cash equivalents and restricted cash at end of period 203.4 357.7 366.1

Less: restricted cash (1) (23.2) (5.5) —

Cash and cash equivalents at end of period $ 180.2 $ 352.2 $ 366.1

Supplemental disclosures:

Cash paid for income taxes, net $ 28.1 $ 9.4 $ 3.1

Cash paid for interest and fees $ 111.1 $ 88.6 $ 34.4

Non-cash investing and financing activities:

Accrued capital expenditures $ 40.5 $ 50.2 $ 1.5

Financed additions of capital expenditures $ 163.2 $ 107.1 $ —

Issuance of common stock in Topgolf merger $ — $ 2,650.2 $ —

Issuance of common stock related to convertible notes $ 0.5 $ — $ —

The accompanying notes are an integral part of these consolidated financial statements.

F-8

TOPGOLF CALLAWAY BRANDS CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In millions)

Shares Amount Shares Amount

Adoption of ASC Topic 326 — — — (0.3) — — — (0.3)

Acquisition of treasury stock — — — — — (1.1) (22.2) (22.2)

Exercise of stock options — — (0.4) — — — 0.6 0.2

Compensatory awards released from restriction — — (19.8) — — 1.2 19.8 —

Share-based compensation — — 10.9 — — — — 10.9

Stock dividends — — — (0.1) — — — (0.1)

Cash dividends ($0.02 per share) — — — (1.9) — — — (1.9)

Foreign currency translation equity adjustment — — — — 25.7 — — 25.7

Capped call premium confirmations, net of tax — — (24.5) — — — — (24.5)

Replacement awards converted in Topgolf merger (Note 15) — — 33.0 — — — — 33.0

Common Stock issued for replacement restricted stock awards 0.2 — — — — — — —

Acquisition of Treasury Stock — — 0.4 — — (1.4) (38.5) (38.1)

Compensatory awards released from restriction — — (18.5) — — 0.9 18.5 —

Share-based compensation — — 38.7 — — — — 38.7

Foreign currency translation equity adjustment — — — — (29.2) — — (29.2)

Change in fair value of derivative instruments, net of tax — — — — 8.4 — — 8.4

Acquisition of treasury stock — — 0.3 — — (1.6) (36.1) (35.8)

Exercise of stock options — — (0.7) — — 0.1 1.4 0.7

Compensatory awards released from restriction — — (29.0) — — 1.2 29.0 —

Share-based compensation — — 47.0 — — — — 47.0

Foreign currency translation equity adjustment — — — — (44.7) — — (44.7)

Change in fair value of derivative instruments, net of tax — — — — 10.5 — — 10.5

Issuance of common stock related to convertible notes — — 0.5 — — — — 0.5

The accompanying notes are an integral part of these consolidated financial statements.

F-9

TOPGOLF CALLAWAY BRANDS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. The Company and Basis of Presentation

The Company

Topgolf Callaway Brands Corp. (the “Company,” or “Topgolf Callaway Brands”), a Delaware corporation, together with its wholly-owned subsidiaries, is a leading modern golf and active lifestyle company that provides world-class golf entertainment experiences, designs and manufactures premium golf equipment, and sells golf and active lifestyle apparel and other accessories through its family of brand names which include Topgolf, Callaway Golf, Odyssey, TravisMathew, Jack Wolfskin, OGIO, Toptracer and World Golf Tour (“WGT”).

Recent Developments

On September 6, 2022, the Company changed its corporate name from Callaway Golf Company to Topgolf Callaway Brands Corp. and on September 7, 2022, changed its New York Stock Exchange ticker symbol from “ELY” to “MODG.” During the second quarter of 2022, the Company changed the name of its “Apparel, Gear, and Other” operating segment to “Active Lifestyle.” These changes to the corporate name, ticker symbol and operating segment name did not have any impact on the Company’s legal entity structure, consolidated financial statements or previously reported statements of financial position, operations, comprehensive income (loss), cash flows and shareholders’ equity or segment operating results.

Basis of Presentation

The Company has prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America (“GAAP”).

Beginning January 1, 2022, the Company changed the presentation of its financial statements and accompanying footnote disclosures from thousands to millions, therefore, certain prior year reported amounts may differ by an insignificant amount due to the nature of the rounding relative to the change in presentation. Other than these changes, the change in presentation had no impact on previously reported financial information.

Fiscal Year End

The Company’s annual financial results are reported on a calendar year basis. In order to align with the Company’s reporting period, as of April 4, 2022, the Company’s Topgolf subsidiary changed its fiscal year end from a 52/53-week fiscal year, which ended on the Sunday closest to December 31, to a calendar year ending on December 31. Therefore, Topgolf financial information included in the Company’s consolidated financial statements for the years ended December 31, 2022 and 2021 are for the period beginning January 3, 2022 and ending December 31, 2022, and the period beginning March 8, 2021 (the date on which the Company completed its merger with Topgolf) and ending January 2, 2022, respectively. For more information on the merger with Topgolf, see Note 6.

Note 2. Summary of 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.

F-10

Use of Estimates

The preparation of financial statements 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, expected credit losses, inventory obsolescence, sales returns, future price concessions, tax contingencies and valuation allowances, and other items requiring judgement. 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.

Revenue Recognition

Product Revenue

Product revenue is comprised of golf clubs, golf balls, lifestyle and outdoor apparel, gear and accessories and golf apparel and accessories. The Company recognizes revenue from the sale of products when it satisfies a performance obligation to a customer, and transfers control of the products ordered to the customer. Control transfers when products are shipped, and in certain cases and in certain contract terms, when products are received by customers. In addition, the Company recognizes revenue at the point of sale on transactions with consumers at its retail locations, and retail shops within Topgolf venues. Sales taxes, value added taxes and other taxes that are collected in connection with revenue transactions are withheld and remitted to the respective taxing authorities. As such, these taxes are excluded from revenue. The Company elected to account for shipping and handling as activities to fulfill the promise to transfer the good. Therefore, shipping and handling fees that are billed to customers are recognized in revenue and the associated shipping and handling costs are recognized in cost of products as soon as control of the goods transfers to the customer.

The Company, in exchange for a royalty fee, licenses its trademarks and service marks to third parties for use on products such as golf apparel and footwear, practice aids and other golf accessories. Royalty income is recognized over time as underlying product sales occur, subject to certain minimum royalties, in accordance with the related licensing arrangements. Royalty income is included in the Company’s Topgolf and Active Lifestyle operating segments.

Revenues from gift cards are deferred and recognized when the cards are redeemed for products and/or services. The Company’s gift cards have no expiration date. Revenue from unredeemed gift cards is recognized when the likelihood of redemption becomes remote (“breakage”) and under circumstances that comply with any applicable state escheatment laws. 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 Company uses this historical redemption rate to recognize breakage on unredeemed gift cards over the redemption period. The Company does not believe there is a reasonable likelihood that there will be a material change in future estimates or assumptions used to determine the timing of recognition of gift card revenues.

Service Revenue

Service revenue is comprised of revenue from the operation of its Topgolf venues consisting primarily of revenues from food and beverage sales, event deposits, fees charged for gameplay, purchases of game credits and membership fees. In addition, services revenues are recognized through the redemption of gift cards, sponsorship contracts, franchise fees, leasing revenue, the Company’s WGT digital golf game and non-refundable deposits for venue reservations.

The Company’s food and beverage revenue is recognized at the time of sale. Event deposits received from guests attributable to food and beverage purchases are deferred and recognized as revenue when the event is held. All sales taxes collected from guests are excluded from revenue and are remitted to the appropriate taxing authorities.

Fees charged for gameplay are recognized at the time of purchase. Event deposits received from guests attributable to gameplay purchases are deferred and recognized as revenue when the event is held. Purchases of game credits are deferred and recognized as revenue when the game credits are redeemed by the guest, or through breakage, when the likelihood of the game credits being redeemed by the guest is remote. The Company uses historic game credit redemption patterns to determine the likelihood of game credit redemption and breakage. Breakage is recorded consistent with historic redemption patterns.

F-11

Premium membership fees received from guests are deferred and recognized as revenue over the life of the associated membership, which is one year or less.

The Company enters into sponsorship contracts that provide advertising opportunities to market to Topgolf guests in the form of custom displays, lobby displays, digital and print posters and other advertising at Topgolf venues and on Topgolf websites. Sponsorship contracts are typically for a fixed price over a period of one to five years and revenue is generally recognized ratably over the contract period unless there is a different predominate pattern of performance.

The Company enters into international development agreements that grant franchise partners the right to develop, open and operate a certain number of venues within a particular geographic area. The franchise partner may be required to pay a territory fee upon entering into a development agreement and a franchise fee for each developed venue. The franchisee will also pay ongoing royalty fees based upon a percentage of sales. Franchise fees for each venue are recognized over the franchise term, up to a maximum of 40 years, including renewal options, per the respective franchise agreement. Revenue from sales-based royalties is recognized as the related sales occur.

Leasing revenue is recognized on non-cancelable sales-type lease agreements related to the licensing of Toptracer software and hardware to driving ranges and golf courses. See Note 4 for further discussion of the Company’s revenues.

The Company’s WGT digital golf game is a service that allows players free gameplay via web and/or mobile gaming platforms and allows players the ability to purchase virtual currency within the game to obtain virtual goods which enhance the gameplay experience. Revenues from purchases of virtual currency are deferred at the point of purchase and recognized as revenue over the average life of a player, which is determined using historical trends and gameplay activity patterns.

Variable Consideration

The Company offers certain discounts and promotions on its products and services. The amount of revenue the Company recognizes is based on the amount of consideration it expects to receive from customers. The amount of consideration is the sales price adjusted for estimates of variable consideration, including sales returns, discounts, and allowances as well as sales programs, sales promotions and price concessions that are offered by the Company as described below. These estimates are based on the amounts earned or expected to be claimed by customers on the related sales and are therefore recorded to the respective net revenue, trade accounts receivable, and sales program liability.

The Company’s primary product sales program, the “Preferred Retailer Program,” offers potential rebates and discounts for participating retailers in exchange for providing certain benefits to the Company, including the maintenance of agreed upon inventory levels, prime product placement and retailer staff training. As part of this program, qualifying retailers can earn either discounts or rebates based on the amount of product purchased. Discounts are applied and recorded at the time of sale. For rebates, the Company estimates the amount of variable consideration related to the rebate at the time of sale based on the customer’s estimated qualifying current year product purchases. The estimate is based on the historical level of purchases, adjusted for any factors expected to affect the current year purchase levels. The estimated year-end rebate is adjusted quarterly based on actual purchase levels, as necessary. The Preferred Retailer Program is generally short-term in nature and the actual amount of rebate to be paid under this program is known as of the end of the year and paid to customers shortly after year-end. Historically, the Company’s actual amount of variable consideration related to its Preferred Retailer Program has not been materially different from its estimates.

The Company also offers short-term sales program incentives related to product sales, which include sell-through promotions and price concessions or price reductions. Sell-through promotions are generally offered throughout the product’s life cycle of approximately two years, and price concessions or price reductions are generally offered at the end of the product’s life cycle. The estimated variable consideration related to these programs is based on a rate that includes historical and forecasted data. The Company records a reduction to product revenues using this rate at the time of the sale. The Company monitors this rate against actual results and forecasted estimates and adjusts the rate as deemed necessary to reflect the amount of consideration it expects to receive from its customers. There were no material changes to the rate during the years ended December 31, 2022, 2021 and 2020. Historically, the Company’s actual amount of variable consideration related to these sales programs has not been materially different from its estimates.

F-12

The Company records an estimate for anticipated product returns as a reduction of sales and cost of products, and accounts receivable, in the period that the related sales are recorded. Sales returns are estimated based upon historical returns, current economic trends, changes in customer demands and sell-through of products. The Company also offers certain customers sales programs that allow for specific returns. The Company records a return liability as an offset to accounts receivable for anticipated returns related to these sales programs at the time of the sale based on the terms of the sales program. The cost recovery of inventory associated with this reserve is accounted for in other current assets. Historically, the Company’s actual sales returns have not been materially different from management’s original estimates.

Product Warranty

The Company has a stated two-year warranty policy for its golf clubs and certain Jack Wolfskin gear, as well as a limited lifetime warranty for its OGIO line of products. 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 Company’s estimates for calculating the warranty reserve are principally based on assumptions regarding the warranty costs of each product line over the expected warranty period. The Company’s warranty reserve amounts for the years ended December 31, 2022, 2021 and 2020 were $10.6 million, $11.0 million, and $9.4 million, respectively.

Cost of Products

The Company’s cost of products is comprised primarily of variable costs that fluctuate with sales volumes, including raw materials and component costs, merchandise from third parties, conversion costs including direct labor and manufacturing overhead, and inbound freight, duties, and shipping charges. In addition, cost of products includes retail merchandise costs for products sold in retail shops within Topgolf venue facilities. Fixed overhead expenses include warehousing costs, indirect labor, and supplies, as well as depreciation expense associated with assets used to manufacture and distribute products. In addition, cost of products includes adjustments to reflect inventory at its net realizable value, as well as adjustments for obsolescence and product warranties.

Cost of Services, Excluding Depreciation and Amortization

The Company’s cost of services primarily consists of food and beverage costs sold at Topgolf venues and transaction fees with respect to in-app purchases within the Company’s WGT digital golf game. In addition, cost of services includes costs associated with Topgolf’s Toptracer license agreements classified as sales-type leases. Food and beverage costs are variable by nature, change with sales volume, and are impacted by product mix and commodity pricing. Cost of services excludes employee costs as well as depreciation and amortization.

Other Venue Expenses

Other venue expenses consist of employee costs that directly support venue operations, in addition to rent and occupancy costs, property taxes, depreciation associated with venues, supplies, credit card fees and marketing expenses. Other venue expenses include both fixed and variable components and therefore do not directly correlate with revenue.

Venue Pre-Opening Costs

Venue pre-opening costs primarily include costs associated with activities prior to the opening of a new Company-operated Topgolf venue and consist of, but are not limited to, labor, rent, occupancy costs, travel and marketing expenses. Pre-opening costs fluctuate based on the timing, size and location of new Company-operated venues.

Selling, General and Administrative Expenses (SG&A)

SG&A expenses are comprised primarily of employee costs, advertising and promotional expense, legal and professional fees, tour expenses, travel expenses, building and rent expenses, depreciation charges (excluding those related to manufacturing, distribution and venue operations), amortization of intangible assets, and other miscellaneous expenses.

Research and Development Expenses

Research and development expenses are comprised of costs to design, develop, test or significantly improve the Company’s products and technology and primarily include employee costs of personnel engaged in research and development activities, research costs and depreciation expense.

F-13

Business Combinations

The Company allocates the purchase consideration to the identifiable assets acquired and liabilities assumed in a business combination based on their acquisition-date fair values. The Company uses its best estimates and assumptions to determine the fair value of tangible and intangible assets acquired and liabilities assumed, as well as the uncertain tax positions and tax-related valuation allowances that are initially recorded in connection with a business combination. These estimates and assumptions are uncertain and may require adjustment. During the measurement period of one year from the acquisition date, the Company continues to collect information and reevaluate these estimates and assumptions, and records adjustments to these estimates to goodwill as necessary. Any adjustments to the acquired assets and liabilities assumed that are identified subsequent to the measurement period are recorded in earnings.

Advertising Costs

The Company’s primary advertising costs include television, print, internet, and media placement. The Company’s policy is to expense advertising costs, including production costs, as incurred. Advertising costs for the years ended December 31, 2022, 2021 and 2020 were $116.1 million, $108.4 million and $83.4 million, respectively, which is recognized within SG&A expenses on the accompanying consolidated statement of operations.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents are highly liquid investments purchased with original maturities of three months or less. Restricted cash is primarily comprised of escrowed funds related to a land purchase of approximately $18.3 million, which closed in January 2023, in addition to deposits associated with gift cards as required under certain statutory mandates. Long-term restricted cash is included in other assets on the accompanying consolidated balance sheet as of December 31, 2022 and 2021.The following is a summary of cash, cash equivalents and restricted cash (in millions):

Year Ended December 31,

Cash and cash equivalents $ 180.2 $ 352.2

Restricted cash, short-term 19.1 1.2

Restricted cash, long-term 4.1 4.3

Total cash, cash equivalents and restricted cash $ 203.4 $ 357.7

Allowance for Estimated Credit Losses

The Company records an allowance for estimated credit losses based upon historical bad debts, current customer receivable balances, age of customer receivable balances and the customers’ financial condition, all of which are subject to change. Additionally, the Company monitors activities and considers future reasonable and supportable forecasts of economic conditions to adjust all general and customer specific reserve percentages as necessary. Balances recorded for estimated credit losses are written-off when they are determined to be uncollectible.

Inventories

The Company’s inventory is recorded at the lower of cost or net realizable value, which includes a reserve for excess, obsolete and/or unmarketable inventory. This reserve is regularly assessed based on current inventory levels, sales and historical trends, as well as management’s estimates of market conditions and forecasts of future product demand, all of which are subject to change. The Company utilizes the standard costing method, determined on the first-in, first-out basis, for its golf equipment inventory and soft goods inventory sold under the TravisMathew, OGIO, Callaway and Jack Wolfskin brands. Golf equipment inventory, which is directly manufactured by the Company, includes finished goods, raw materials, labor and manufacturing overhead costs and work in process. Inventory for the Company’s soft goods product lines, which are manufactured by third-party contractors, primarily include finished goods. Toptracer hardware and software, food and beverage products and Topgolf-specific retail merchandise inventories are stated at weighted-average cost.

F-14

Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation expense is recognized on a straight-line basis over the estimated useful lives of the related assets, which generally range from two years to 40 years. See Note 11 for further detail regarding the Company’s property, plant and equipment.

Buildings capitalized in conjunction with DLF obligations, where the Company is deemed to be the accounting owner, are depreciated over the shorter of 40 years or the lease term, less the residual value.

Normal repairs and maintenance costs are expensed as incurred. Costs that materially increase value, change capacities, or extend the useful lives of property, plant or equipment are capitalized. When property, plant or equipment is retired or disposed, the related costs and accumulated depreciation are removed from the accounts and any resulting gain or loss on disposition is recognized in earnings. Construction-in-process consists primarily of costs associated with building improvements, machinery and equipment and venues under construction that have not yet been placed into service, production molds, and in-process internal-use software.

All direct external costs and internal direct labor costs incurred to develop internal-use software during the development stage are capitalized and depreciated on a straight-line basis over the estimated useful life of the software. Costs incurred during the preliminary project stage are expensed, as well as maintenance and training costs. Costs incurred to establish the technological feasibility of software to be sold, leased, or otherwise marketed are expensed as incurred and recorded in research and development expense. Once technological feasibility is established, costs are capitalized until the product is available for general use, and depreciated over the estimated useful life of the software.

Leases

The Company leases office space, manufacturing plants, warehouses, distribution centers, Company-operated Topgolf venues, vehicles and equipment, as well as retail and/or outlet locations related to the TravisMathew and Jack Wolfskin businesses and the apparel businesses in Japan and Korea. Certain real estate leases include one or more options to extend the lease term, options to purchase the leased property at the Company’s sole discretion, or escalation clauses that increase the rent payments over the lease term. When deemed reasonably certain of exercise, the renewal and purchase options are included in the determination of the lease term and lease payment obligation, respectively. The depreciable life of machinery and equipment, computer equipment and leasehold improvements are limited to the expected lease term unless there is a transfer of title or purchase option which is reasonably certain of exercise. In some instances, certain leases may require an additional contingent rent payment based on a percentage of total gross sales greater than certain amounts, which are specified within the specific lease agreement. The Company recognizes contingent rent expense when it is probable that sales thresholds will be reached during the fiscal year. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating and Financing Leases

The Company determines if an arrangement is a lease, or contains a lease, at the inception of the arrangement. If the Company determines that an arrangement is a lease or contains a lease, a right-of-use (“ROU”) asset representing the right to use the underlying asset during the lease term, and a lease liability representing the obligation to make lease payments that arise from the lease are recognized as either an Operating or Financing lease on the Company’s consolidated balance sheet. ROU assets and liabilities are recognized at the commencement date of the lease and are based on the present value of lease payments over the lease term. When readily determinable, the Company uses the rate implicit in the lease agreement in determining the present value of minimum lease payments for the particular lease. If the implicit rate for the lease is not provided, the Company uses its incremental borrowing rate which is based on information available at the lease commencement date, including the lease term, and represents a rate the Company would incur to borrow an amount on a collateralized basis equal to the lease payments over a similar term and under similar economic conditions. At the commencement of a lease, the ROU asset is measured by taking the sum of the present value of the lease liability and any initial direct costs and/or prepaid lease payments, and deducting any lease incentives. After the lease commencement date, lease expense is recognized as a single lease cost on a straight-line basis over the lease term for Operating leases, and amortization expense and interest expense is recognized over the lease term for Financing leases. Lease agreements related to properties are generally comprised of both lease and non-lease components. Non-lease components, which include items such as common area maintenance charges, property taxes and insurance, are expensed as incurred and are recognized separately from the straight-line lease expense.

F-15

Variable lease payments that do not depend on an index or rate, such as rental payments based on a percentage of retail revenue over contractual levels, are separately expensed as incurred, and are not included in the measurement of the ROU asset and lease liability. Variable lease payments that depend on an index or rate, such as rates that are adjusted periodically for inflation, are included in the initial measurement of the ROU asset and lease liability and are recognized on a straight-line basis over the lease term.

Deemed Landlord Financing Obligations (DLF obligations)

In certain leasing arrangements related to the Company’s Topgolf venues, and due to the Company’s involvement in the construction of leased assets, the Company is deemed to be the accounting owner of certain leased assets that did not meet the sales-leaseback criteria upon completion of construction. In such cases, in addition to capitalizing the Company’s construction costs, the Company capitalizes the construction costs funded by the landlord related to its leased premises and recognizes a corresponding liability for those costs as construction advances during the construction period. At the end of the construction period, the Company applies the sale-and-leaseback criteria to determine whether the underlying asset should be derecognized. When the application of the sale-and-leaseback guidance results in a sale, the asset and liability on the Company’s balance sheet are derecognized. When the application of the sale-and-leaseback guidance results in a failed sale, the asset remains on the Company’s balance sheet and is depreciated over its respective useful life or the lease term, whichever is shorter, and the liability is accounted for as a DLF obligation. These DLF obligations are generally non-cancelable leases with initial terms of 20 years containing various renewal options following the initial term and escalation clauses that increase the payments over the lease term.

Sales-Type Leases

With respect to the Company’s Toptracer operations, the Company enters into non-cancelable license agreements that combine software and hardware. These license agreements provide the customer the right to use Company-owned software and hardware products for a specified period, generally ranging from three to five years. The software and hardware are a distinct bundle of goods which are highly interrelated. At the inception of the agreement, the lease classification is assessed, and generally results in the license agreement being classified as sales-type leases. Upon commencement of these sales-type leases, revenue is recognized for the software and hardware as a single component, and a leasing receivable consisting of the present value of payments over the non-cancelable term is recorded. Interest income on the leasing receivable is recognized over the term of the lease. The Company manages its risk on its sales-type leases through its pricing and through the terms of the leases. Any equipment returned to the Company as a result of a cancellation of a lease may be leased or sold to other customers, therefore risk associated with the Company’s sales-type leases is considered minimal.

Goodwill and Intangible Assets

Goodwill and acquired intangible assets are recorded in connection with an acquisition or business combination. Goodwill represents the excess of the total consideration paid over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed in connection with the acquisition or business combination. Identifiable intangible assets consist of tradenames and trademarks, liquor licenses, patents, customer and distributor relationships, and developed technology. Intangible assets that are determined to have definite lives are amortized over their estimated useful lives and are assessed for impairment when indicators are present. Goodwill and intangible assets with indefinite lives are not amortized and are instead measured for impairment at least annually or more frequently when events or circumstances occur that indicate an impairment may exist. Except for software costs which are determined to be eligible for capitalization, costs related to the development, maintenance or renewal of internally developed intangible assets that are inherent in the Company’s continuing business that were not acquired as a part of a business combination or asset acquisition, are expensed as incurred.

F-16

Impairments

The Company assesses potential impairments of its long-lived assets, namely property, plant and equipment and ROU assets, and acquired intangible assets that are subject to amortization, such as acquired customer and distributor relationships whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. Events or changes that would necessitate an impairment assessment include a significant change in the extent or manner in which the asset is used, a significant change in legal or business factors that could affect the value of the asset, or a significant decline in the observable market value of an asset, amongst others. If such events or changes indicate a potential impairment, the Company would assess recoverability of the asset or asset group by determining if the carrying value of the asset or asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the asset or asset group. An impairment charge would be recognized when the carrying amount of a long-lived asset or asset group is determined to not be recoverable and exceeds its fair value.

The Company performs an impairment assessment on its Goodwill and indefinite-lived intangible assets at least annually during the fourth quarter of the year, or more frequently when events or circumstances occur that indicate an impairment may exist. These events or circumstances may include macroeconomic conditions, significant changes in the industry or business climate, legal factors, or other operating performance indicators, amongst other things. If an event occurs that indicates an impairment may exist, the Company may perform a qualitative assessment to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired. If after the qualitative assessment the Company determines it is more likely than not that the indefinite-lived intangible asset is not impaired, no quantitative fair value test is necessary. If after performing the qualitative assessment the Company concludes it is more likely than not that the fair value of the indefinite-lived intangible is less than its carrying amount, the Company will perform a quantitative fair value test to determine the fair value of the asset or reporting unit. To determine fair value, the Company uses discounted cash flow estimates, quoted market prices, royalty rates when available, and independent appraisals and valuation specialists when appropriate. 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 the fair value of the asset, a write-down is recorded.

In 2020, due to the significant disruptions caused by the COVID-19 pandemic on the Company’s operations, the Company recognized an impairment loss on the goodwill and trade name associated with its Jack Wolfskin business. See Note 9 for further discussion of the Company’s impairment loss at Jack Wolfskin.

Investments

The Company determines the appropriate classification of its investments at the time of acquisition and reevaluates such classification at each balance sheet date. The Company has elected to apply the measurement alternative to investments that do not have readily determinable fair values. As such, these investments are measured at cost, and are evaluated for changes in fair value if there is an observable price change in an orderly transaction for an identical or similar investment. The Company assesses investments for impairment whenever events or changes in circumstances indicate that the investment’s carrying value may not be recoverable. An impairment charge would be recognized when the carrying amount exceeds its fair value. See Note 10 for further discussion of the Company’s investments.

Foreign Currency Translation and Transactions

A significant portion of the Company’s business is conducted outside of the United States in currencies other than the U.S. dollar. As a result, changes in foreign currency exchange rates can have a significant impact on the Company’s financial results. Revenues and expenses that are denominated in foreign currencies are translated using the average exchange rate for the period. Assets and liabilities are translated using the rate of exchange at the balance sheet date. Gains and losses from assets and liabilities denominated in a currency other than the functional currency of the entity in which they reside are generally recognized during the current period in the Company’s statements of operations. Gains and losses from the translation of foreign subsidiary financial statements into U.S. dollars are included in accumulated other comprehensive income or loss.

F-17

Derivatives and Hedging

In order to mitigate the impact of foreign currency translation on transactions and changes in interest rates, the Company uses foreign currency forward contracts and interest rate hedge contracts. The contracts are measured at fair value and are recorded as either assets or liabilities on the consolidated balance sheet. Contracts which satisfy certain criteria and are elected for hedge accounting treatment may be classified as either designated or undesignated cash flow hedges. Changes in the fair value of derivatives which are classified as undesignated hedges are recognized in earnings in the period of the change. Changes in the fair value of derivatives which qualify for and are classified as designated cash flow hedges are recorded as a component of accumulated other comprehensive income and released into earnings as a component of cost of products, other income and interest expense during the period in which the hedged transaction takes place. Remeasurement gains or losses of derivatives that are not elected for hedge accounting treatment are recorded in earnings immediately as a component of other income.

The Company would discontinue hedge accounting prospectively (i) if it is determined that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated, or exercised, (iii) if it becomes probable that the forecasted transaction being hedged by the derivative will not occur, (iv) if a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if it is determined that designation of the derivative as a hedge instrument is no longer appropriate. The Company estimates the fair value of its foreign currency forward contracts based on pricing models using current market rates. These contracts are classified under Level 2 of the fair value hierarchy. See Note 17 for further discussion of the Company’s financial instruments.

Share-Based Compensation

The Company may grant restricted stock units and awards, performance-based awards, stock options and stock appreciation rights, and other equity-based awards to its officers, employees, consultants and other non-employees who provide services to the Company under its stock incentive plans. The Company measures and recognizes share-based compensation expense for employees and non-employees based on estimated fair values, net of estimated forfeitures. Estimated forfeitures are based on historical experience and forfeiture trends. If actual forfeiture rates differ materially from the Company’s estimates, the Company may be required to record an adjustment to its share-based compensation expense in future periods.

Restricted Stock Awards and Restricted Stock Units

The estimated fair value of restricted stock awards and restricted stock units (collectively “restricted stock”) is calculated based on the closing price of the Company’s common stock on the date of grant multiplied by the number of shares of restricted stock granted. Compensation expense, net of estimated forfeitures, is recognized on a straight-line basis over a vesting period of three to five years from the date of grant.

F-18

Performance Based Restricted Share Unit Awards

The Company grants performance based restricted share unit awards (“PRSU”) in which the number of shares that may ultimately be issued upon vesting is based on the Company’s achievement of specific performance metrics for each award that are measured during a specified performance period, which may range from 0% to 200% of the participant’s target award. PRSU performance measures include adjusted earnings before interest, taxes, depreciation, amortization, stock compensation, non-cash lease amortization expense and non-recurring costs (“Adjusted EBITDA”), earnings per share (“EPS”), adjusted pre-tax income (“APTI”) and total shareholder return (“rTSR”). The performance period for these awards ranges from three to five years from the date of grant. PRSUs based on EBITDA, EPS and APTI are initially valued at the Company’s closing stock price on the date of grant. PRSUs based on rTSR performance measures are initially valued using a Monte Carlo simulation which utilizes the stock volatility, dividend yield and a market correlation of the Company and the Company’s peer group, and is based on the probable achievement of 100% of the rTSR performance goals as determined on the date of grant. Compensation expense for all PRSUs is recognized, net of estimated forfeitures, on a straight-line basis over a vesting period of three to five years, and is based on the fixed fair value assigned to each of the awards on the date of grant. Over the course of the performance period, compensation expense for PRSUs based on EBITDA, EPS and APTI is adjusted according to the anticipated level of achievement of the specified performance metric over the performance period for the award. If the performance goals are not probable of achievement during the performance period, compensation expense related to these awards is reversed. Compensation expense for rTSR PRSUs is based on a fixed grant date fair value derived from a Monte Carlo simulation which assumes the probable performance achievement of 100%, which is not adjusted over the course of the performance period or reversed if achievement is not probable. All awards that do not achieve the minimum cumulative performance threshold over the performance period are forfeited at the end of the specified performance period.

Stock Options

Stock options are granted 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 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 over the vesting term, net of estimated forfeitures. See Note 15 for further discussion of the Company’s share-based compensation.

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 that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled. The Company maintains a valuation allowance for a deferred tax asset when it is deemed to be more likely than not that some or all of the deferred tax assets 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.

The Company accrues 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 in income tax expense, 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. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. See Note 12 for further discussion of the Company’s income taxes.

F-19

Other Income, Net

Other income, net primarily includes gains and losses on foreign currency forward contracts, cross-currency swap contracts and foreign currency transactions.The components of other income, net are as follows (in millions):

Years Ended December 31,

Foreign currency forward contract gain, net $ 44.5 $ 14.4 $ 2.9

Foreign currency transaction (loss) gain, net (18.3) (6.4) 9.0

Settlement of cross-currency swap contract (See Note 18) — — 11.1

Concentration of Risk

On a consolidated basis, no single customer accounted for more than 10% of the Company’s consolidated revenues in 2022, 2021 or 2020. The Company’s top five customers accounted for approximately 12% of the Company’s consolidated revenues in 2022, 13% in 2021, and 20% in 2020.

The Company’s top five customers specific to the Golf Equipment and Active Lifestyle operating segments represented the following as a percentage of each segment’s total net revenues:

•Golf Equipment customers accounted for approximately 26%, 24% and 25% of total consolidated Golf Equipment sales in 2022, 2021, and 2020, respectively; and

•Active Lifestyle customers accounted for approximately 17% of total consolidated Active Lifestyle sales in both 2022 and 2021, and 12% in 2020.

With respect to the Company’s trade receivables, the Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral from these customers. The Company maintains reserves for estimated credit losses, which it considers adequate to cover any such losses. At December 31, 2022 and 2021, one customer represented 17% and 11%, respectively, of the Company’s outstanding accounts receivable balance.

Of the Company’s total consolidated net revenues, approximately 30%, 34% and 51% were derived from sales outside of the United States in 2022, 2021 and 2020, respectively. As a result of this international business, the Company is exposed to increased risks inherent in conducting business outside of the United States.

The Company is dependent on a limited number of suppliers for its clubheads and shafts, some of which are single sourced. Furthermore, some of the Company’s products require specially developed manufacturing techniques and processes which make it difficult to identify and utilize alternative suppliers quickly. The Company also depends on a single or a limited number of suppliers for the materials it uses to make its golf balls. Many of these materials are customized for the Company.

The Company’s financial instruments that are subject to concentrations of credit risk consist primarily of cash equivalents, trade receivables, foreign currency forward contracts, cross-currency debt swap contracts and interest rate hedge contracts. From time to time, the Company 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 enters into foreign currency forward contracts for the purpose of hedging foreign exchange rate exposures on existing or anticipated transactions, and interest rate hedge contracts for the purpose of hedging interest rate exposures on its term loan facility. 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 entered into until the time it was settled. The Company’s hedging contracts are subject to a master netting agreement with each respective counterparty bank and are therefore net settled.

F-20

Note 3. New Accounting Standards

Recent Accounting Standards

In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2022-03”). ASU 2022-03 clarifies the guidance in Topic 820 when measuring the fair value of an equity security that is subject to a contractual sale restriction, and also introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact that this ASU will have on its consolidated financial statements and related disclosures.

Adoption of New Accounting Standards

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). This ASU simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, a convertible debt instrument is accounted for as a single liability measured at its amortized cost. These changes reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. Also, this ASU requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The amendments in this update are effective for public entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, and may be adopted through either a fully retrospective or modified retrospective method of transition only at the beginning of an entity’s fiscal year. The Company has Convertible Senior Notes (the “Convertible Notes”) with a cash conversion feature that was recognized in equity at the time of issuance (see Note 7) and has adopted this standard as of January 1, 2022 under the modified retrospective method of transition. As such, prior period amounts have not been retrospectively adjusted. Adoption of the standard resulted in a reduction in additional paid-in capital of $57.1 million, an increase to long-term debt, net of $57.9 million, a decrease in the deferred taxes, net of $13.2 million and an increase in retained earnings of $12.4 million. Additionally, in periods when net income is reported, the Company will use the if-converted method for calculating diluted earnings per common share. Under the if-converted method, the 14.7 million common shares underlying the Convertible Notes are assumed to have been outstanding as of the beginning of the current reporting period and any interest expense related to the Convertible Notes for the period is excluded from the calculation of diluted earnings per common share, resulting in an increase to net income. As a result, during the year ended December 31, 2022, after-tax interest expense in the amount of $6.4 million was excluded from net income in the calculation of earnings per common share—diluted (see Note 8). Prior to the adoption of ASU 2020-06, the Company used the treasury stock method to compute dilutive shares of common stock related to the Convertible Notes for periods when the Company reported net income. The treasury stock method assumes that proceeds received upon exercises are used to purchase common shares at the average market price during the period. Additionally, under the treasury stock method, interest expense related to the Convertible Notes for the period was included in net income for the calculation of earnings per common share—diluted.

In July 2021, the FASB issued ASU No. 2021-05, “Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments” which requires lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: (1) the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in Topic 842; and (2) the lessor would have otherwise recognized a day-one loss. The amendments are effective for annual periods beginning after December 15, 2021 with early adoption permitted. The adoption of this ASU did not have any impact on the Company’s consolidated financial statements.

F-21

Note 4. Leases

Sales-Type Leases

The Company enters into non-cancelable license agreements that provide software and hardware to driving ranges, hospitality venues, and entertainment venues. These license agreements are classified as sales-type leases.

Leasing revenue from sales-type leases is included in services revenues within the consolidated statements of operations. There were no revenues attributed to sales-type leases for the year ended December 31, 2020. Leasing revenue attributed to sales-type leases consists of the selling price and interest income as follows (in millions):

Sales-type lease selling price(1) $ 36.3 $ 29.8

Cost of underlying assets (17.6) (11.9)

Interest income $ 4.5 $ 4.3

Leasing revenue attributable to sales-type leases $ 40.8 $ 34.1

Leasing receivables related to the Company’s net investment in sales-type leases are as follows (in millions):

Leasing receivables, net—short-term Other current assets $ 17.5 $ 12.8

Leasing receivables, net—long-term Other assets 57.5 44.1

Total leasing receivables $ 75.0 $ 56.9

F-22

As of December 31, 2022, maturities of sales-type lease receivables for the next five years and thereafter were as follows (in millions):

Sales-type Leases

Thereafter 3.6

Total future lease payments 86.9

Less: imputed interest 11.9

Operating and Finance Leases

As a lessee, the Company leases office space, manufacturing plants, warehouses, distribution centers, Company-operated Topgolf venues, vehicles and equipment, as well as retail and/or outlet locations.

Supplemental balance sheet information related to leases is as follows (in millions):

December 31,

Operating Leases:

ROU assets, net Operating lease ROU assets, net $ 1,419.1 $ 1,384.5

Finance Leases:

ROU assets, net Other assets $ 215.7 $ 129.5

Lease liabilities, short-term Accounts payable and accrued expenses $ 1.7 $ 1.8

Lease liabilities, long-term Other long-term liabilities $ 225.9 $ 132.5

The components of lease expense are as follows (in millions):

Year Ended December 31,

Financing lease costs:

Amortization of right-of-use assets 6.4 3.2 0.9

Interest on lease liabilities 9.3 4.5 —

Total financing lease costs 15.7 7.7 0.9

F-23

Other information related to leases was as follows:

CALY US Equity

CALY · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Item 13. Certain Relationships, Related Transactions and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

CALY US Equity☆

CALY · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Item 13. Certain Relationships, Related Transactions and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

CALY US Equity