Callaway 2006 Annual Report Download - page 20

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redundant infrastructure and overhead while improving functionality. As a result of the consolidation, all of the
Company’s golf ball products through December 2006 were manufactured at the Chicopee and Gloversville
facilities. In October 2006, the Company entered into a supply agreement to have a limited portion of its golf ball
products manufactured overseas in 2007. See Note 3 to the Consolidated Financial Statements. Overall, the golf
ball manufacturing process is much more automated than the golf club assembly process, although a significant
amount of labor is still used in the golf ball manufacturing process.
For certain risks associated with golf club and golf ball manufacturing, see below, “Certain Factors
Affecting Callaway Golf Company” contained in Item 1A.
Sales and Marketing
Sales in the United States
Approximately 56% of the Company’s net sales were derived from sales within the United States in both
2006 and 2005 and 58% in 2004. The Company primarily sells to both on- and off-course golf retailers and
sporting goods retailers who sell quality golf products and provide a level of customer service appropriate for the
sale of such products. The Company also sells to mass merchants, primarily with regard to its Top-Flite branded
products. On a consolidated basis, no one customer that distributes golf clubs or golf balls in the United States
accounted for more than 3% of the Company’s revenues in 2006, and 4% in both 2005 and 2004. On a segment
basis, the golf ball customer base is much more concentrated than the golf club customer base. In 2006, the top
five golf ball customers accounted for approximately 21% of the total golf ball sales in the United States. A loss
of one or more of these customers could have a significant adverse effect upon the Company’s golf ball sales.
During 2005, the Company completed the consolidation of the Callaway Golf, Top-Flite, Ben Hogan and
Odyssey selling functions. Sales of the Company’s products in the United States are made and supported by full-
time regional field representatives and in-house sales and customer service representatives who are employees of
the Company. Each geographic territory is covered by both a field representative and a dedicated in-house sales
representative who work together to initiate and maintain relationships with customers through frequent
telephone calls and in-person visits. The Company believes that this tandem approach of utilizing field
representatives and dedicated in-house sales representatives provides the Company a competitive advantage. In
addition to these sales representatives, the Company also has dedicated in-house customer service
representatives.
In addition, other dedicated sales representatives provide service to corporate customers who want their
corporate logo imprinted on the Company’s golf balls, putters or golf bags. The Company imprints the logos on
the majority of its products, thereby retaining control over the quality of the process and final product. The
Company also pays a commission to certain on- and off-course professionals and retailers with whom it has a
relationship for corporate sales that originate through such professionals and retailers.
The Company also has a separate team of manufacturing and club fitting specialists who focus on the
Company’s custom club sales. Custom club sales are generated primarily from the utilization of the Company’s
club fitting programs such as performance centers as well as other specialists, iron and wood fitting carts, and a
vehicle with club building capacity. In addition, during 2006, the Company launched the Callaway Golf OptiFit
Driver System, a custom fitting system that enables golfers to experiment at participating on-course and
off-course retail stores with an extensive variety of clubhead and shaft combinations in order to find the driver
that fits their personal specifications. The OptiFit Driver System equips retailers and pros with a compact, hi-tech
fitting tool that can quickly identify the precise clubhead and shaft combination for each golfer’s individual
swing, thereby dramatically improving the process in which consumers select a new driver. Club fittings are
performed by golf professionals who are specifically trained to fit golfers of all abilities into custom-fitted clubs.
The Company believes that offering golfers the opportunity to increase performance with custom club
specifications increases sales and promotes brand loyalty.
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