Callaway 2003 Annual Report Download - page 7

I am proud of our management team and employees and their
ability and commitment to delivering the highest operating ratios
in the industry and their drive to do it year after year. They con-
tinually strive to make our Company what we all desire it to be.
What else is going on at our Company?
In 2003 we also continued our efforts to improve in the
area of corporate governance. Your Board of Directors worked
with management to implement the following:
• As we moved from the transition phase into full implementation,
the Board reconstituted the Nominating Committee into the
Nominating and Corporate Governance Committee, and
transferred the responsibility for governance from the Executive
committee. This Committee of all independent directors now
has governance as a part of its charter.
• We launched our Corporate Governance Website, which is
located in the Investor Relations section of www.callawaygolf.com.
When you go there you can read our Board policies, committee
charters and other things of importance related to how our
Company is directed.
•Pursuant to our written Governance Guidelines and the new
regulatory rules, we amended our Bylaws to provide that a
substantial majority of directors must be independent; adopted
a policy clearly defining the relationship between the Audit
Committee and the Company’s independent auditors;
established a process for interested parties, including share-
holders and employees, to contact independent directors
and/or the Audit Committee; and instituted the requirement
that inside and outside legal counsel must report certain types
of suspected wrongdoing.
We also added two new independent directors to our Board:
Samuel H. Armacost, Chairman of SRI International (formerly
Stanford Research Institute) and former President and CEO of
BankAmerica Corp.; and John C. Cushman III, Chairman of
Cushman & Wakefield, Inc. They bring vast experience in broad
business areas, and are supportive of our efforts to protect and grow
our share value. Unfortunately, we also faced the loss of a signif-
icant and most positive influence on our Company due to the
retirement of Vernon E. Jordan, Jr., a member of our Board since
1997. He was an invaluable source of counsel to me, and to Ely
prior to my tenure. Welcome to Sam and John, and thank you
Vernon, my friend.
We have continued our commitment to invest in Six Sigma
efforts to improve our operations in all functions. Today we have
91 trained employees applying Six Sigma to everyday business
problems – 42 who have completed Project Team Training, 41
“Green Belts,” and eight “Black Belts.” Forty-seven projects were
completed this year, contributing to our earnings improvement this
year and in the future. In 2004, we will be applying Six Sigma
techniques to six “core processes” in an effort to drive significant
benefits for the Company. Congratulations to all employees that
have embraced these principles of problem solving.
Our “Trade In/Trade Up” program had an excellent inaugural
year, with over 2,800 accounts participating and over 22,000
trades involving over 50,000 pre-owned Callaway Golf products
for new products in 2003. This program is a testament to the
value we have created in our brand, clearly separating us from the
pack. Why? Because no other golf equipment brand has demon-
strated enough strength with consumers to support both a thriving
market for current product as well as a separate and organized
(that is, something other than a hit-or-miss presence on eBay)
market for
previously owned product. In fact, we find that our
previously owned Callaway Golf products sold through
www.callawaygolfpreowned.com compete with the new prod-
ucts of some of our competitors.
Callaway Golf apparel also enjoyed a great year. Sales by our
licensed partner, Ashworth, Inc., increased more than 75% to
nearly $31 million in 2003 (with the Callaway Golf brand
accounting for 21% of Ashworth’s total revenues for the year).
Our licensed apparel partner in Japan, Sanei International Co.,
Ltd., also had good success in its first full year of operation. Our
royalty revenues from apparel reached nearly $2 million in 2003.
This line item of licensing revenue promises to be an income
stream that looks and acts a lot like an annuity for years to come.
We launched our entry into the footwear business through a
license arrangement with Tour Golf Group, Inc., in 2003. This is
another element in our strategy to be “head-to-toe” for golf. Tour
Golf Group, Inc., experienced a promising start in the U.S. with
sales of over $3.5 million, and will be expanding into Canada and
Europe in 2004.
4CALLAWAY GOLF COMPANY