Callaway 2006 Annual Report Download - page 5

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did it with not one but two Callaway Golf drivers in his bag. Annika Sorenstam won
three times, including her second U.S. Women’s Open, had five second-place finishes
and won more than $1.9 million. In 2007 we signed Ernie Els, who has established
both a career and character that aligns perfectly with the Callaway Golf brand. We are
as impressed with Ernie’s commitment to improving his golf game as we are with his
charitable endeavors.
The core structure of Callaway Golf Company is extremely solid, yet we are
continually looking for ways to improve our processes and disciplines to make it
stronger and more profitable.
The supply chain issues that the Company experienced have been all but
eliminated. Several initiatives to be implemented over the next two years have been
designed to improve gross margins and overall profitability.
Financial results were much improved in 2006. Sales of our Callaway Golf
and Odyssey brands were up 9%, a strong indicator of the veracity of our industry
leadership position. On the flip side of that coin, however, our Top-Flite brand did not
meet our expectations, and much effort was devoted in the second half of last year to
developing a 2007 re-launch strategy for this venerable brand behind the strength of
the new Top-Flite D2 Golf Ball.
Overall, net sales were up 2%, to $1.018 billion, the first time we have exceeded
the billion-dollar mark. Fully diluted earnings per share were up as well, from $0.19
in 2005 to $0.34. While clearly an improvement, there remains substantial room for
growth. The Company captured $35 million of operating expense savings in 2006, and
in the third quarter a gross margin improvement initiative was embarked upon that is
expected to result in savings of $50 million to $60 million over the next two years.
In this business, any company will only be as successful as the quality of its
products, and in 2006 we made major strides in equipment. In every major equipment
category we compete in, we rank either first or second in U.S. market share. In irons
alone we have been the No. 1 brand in golf for more than 10 straight years.