ELYZP

Investment Thesis 2013-02-18 Mo Boonipat

Callaway Golf 7.50% Series B Cumulative Perpetual Convertible Preferred Stock (PINK:ELYZP)
Information: Issue date: June 2009; Conversion at $7.05/share Convertible at any time at the holders option Market Information: Price: $101.95/share (Feb 7, 2013) Total value: 42.62 million [Callaway common stock market cap = 500m at $7.09/share] *Note: due to low liquidity, this investment might not be practical to execute. The investment thesis might be more theoretical than practical. Investment Thesis - Small total debt to equity provide a margin of safety to the preferred - Additional safety in brand value far exceeding total debt. - Attractive yield of 7.5% given the low risk - Perpetual call option on the companys turnaround initiative

convt debt, 107.00

ELYZP, 42.00

equity, 393.00

Start trading November 2009

Comparables: -Fortune brand sell Acushnet Company, with $1.2 billion sales (Titleist: #1 golf ball, leader clubs; FootJoy: #1 shoe and glove in golf.) Earnings around $50m. revenue foreign. Sold for $1.2 billion, May 2011. Sales Overview: Foreign business 53%.
%"of"Sales Ranking Putters Clubs Irons Balls Acessories 10% 24% 23% 18% 24% US 1 2 2 3 N/A Europe 1 3 2 3 N/A Japan Rest5of5Asia 1 N/A 45or52 N/A 45or52 N/A 45or52 N/A N/A N/A Others N/A N/A N/A N/A N/A 47% 15% 17% 9% 11%

Source: company presentation, 10-K. Turnaround: Management change in 2011. Chipo Brewer with a track record of turning around Adams Golf and selling it to TaloyMade Adidas. Shareholder for common stock: Janus Capital 9%, Blackrock 7.3%, Officers and directors 3.4%.

ELYZP Investment Thesis 2013-02-18 Mo Boonipat

Fiscal'year'ends'in'December.'USD'in'millions'except'per'share'data. 2007;12 2008;12 2009;12 2010;12 2011;12 2012;3Q Assets Current'assets Cash Cash'and'cash'equivalents 50 38 78 55 43 59 Total'cash 50 38 78 55 43 59 Receivables 112 120 140 145 116 144 Inventories 253 257 219 269 233 189 Deferred'income'taxes 42 27 21 24 4 4 Other'current'assets 39 47 54 52 24 27 Total'current'assets 497 490 513 544 419 423 Non;current'assets Property,'plant'and'equipment Gross'property,'plant'and'equipment 405 415 452 459 418 Accumulated'Depreciation ;277 ;273 ;309 ;329 ;300 Net'property,'plant'and'equipment 128 142 143 130 117 95 Goodwill 32 30 31 31 29 29 Intangible'assets 141 147 143 131 122 95 Deferred'income'taxes 19 6 10 4 1 1 Other'long;term'assets 40 40 35 37 38 39 Total'non;current'assets 360 365 363 332 308 259 Total'assets 857 855 876 876 727 682 Liabilities'and'stockholders''equity Liabilities Current'liabilities Short;term'debt 37 90 Accounts'payable 33 42 43 39 4 Deferred'income'taxes 0 4 3 Taxes'payable 1 3 29 Accrued'liabilities 154 121 32 132 122 99 Other'current'liabilities 120 136 Total'current'liabilities 224 253 151 175 168 Non;current'liabilities 107 Deferred'taxes'liabilities 21 1 1 31 30 Pensions'and'other'benefits 7 4 7 Minority'interest 2 2 3 3 3 3 Other'long;term'liabilities 42 15 13 9 8 13 Total'non;current'liabilities 65 24 17 17 49 153 Total'liabilities 289 277 169 192 217 289 Stockholders''equity Preferred'stock 0 0 0 0 Common'stock 1 1 1 1 1 1 Additional'paid;in'capital 112 102 257 264 265 204 Retained'earnings 470 519 474 433 248 186 Treasury'stock ;32 ;24 ;24 ;25 ;18 ;15 Accumulated'other'comprehensive'income 17 ;20 ;1 11 14 17 Total'stockholders''equity 568 578 707 684 510 393 Total'liabilities'and'stockholders''equity 857 855 876 876 727 682

Fiscal'year'ends'in'December.'USD'in'millions'except'per'share'data. Revenue Cost'of'revenue Gross'profit Operating'expenses Research'and'development Sales,'General'and'administrative Total'operating'expenses Operating'income Interest'Expense Other'income'(expense) Income'before'taxes Provision'for'income'taxes Net'income'from'continuing'operations Net'income Preferred'dividend Net'income'available'to'common'shareholders Earnings'per'share Basic Diluted Weighted'average'shares'outstanding Basic Diluted 2007;12 2008;12 2009;12 2010;12 2011;12 1125 1117 951 968 887 631 630 607 602 575 493 487 344 365 311 32 371 403 90 5 3 88 34 55 55 55 0.82 0.81 66 67 29 373 403 84 5 22 101 35 66 66 66 1.05 1.04 63 64 32 342 374 ;31 2 3 ;30 ;14 ;15 ;15 6 ;21 ;0.33 ;0.33 63 63 36 356 392 ;27 1 ;8 ;36 ;17 ;19 ;19 10 ;29 ;0.46 ;0.46 64 64 34 358 392 ;81 2 ;8 ;90 82 ;172 ;172 10 ;182 ;2.82 ;2.82 65 65