Callaway 2010 Annual Report Download - page 18

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Manufacturing
The Company has been actively implementing its global operations strategy targeted at improving the
Company’s gross margins (the “Global Operations Strategy”). In connection with this initiative, the Company
has moved some of its production capabilities for both golf clubs and golf balls to other locations and to third
parties outside the United States in order to meet regional demand and reduce costs. As of December 31, 2010,
approximately 60% of the Company’s golf club and golf ball production volume was generated at third-party
sites outside of the United States. During the third quarter of 2010, the Company announced the restructuring of
its golf club and golf ball manufacturing and distribution operations, which resulted in the reorganization of the
Company’s manufacturing and distribution centers located in Carlsbad, California, Toronto, Canada, and
Chicopee, Massachusetts, the use of third-party logistics in Dallas, Texas and Toronto, Canada, as well as the
establishment of a new production facility in Monterrey, Mexico. This restructuring is designed to add speed and
flexibility to customer service demands, optimize efficiencies, and facilitate long-term gross margin
improvements. It is estimated that this restructuring will be substantially complete by the end of 2011. The
Company intends to maintain limited golf club and golf ball manufacturing and distribution facilities in Carlsbad,
California and Chicopee, Massachusetts, respectively.
In general, the Company’s golf clubs are assembled using components obtained from suppliers both
internationally and within the United States. Significant progress has been made in automating certain facets of
the manufacturing process during the last few years and continued emphasis will be placed on automated
manufacturing by the Company. However, the overall golf club assembly process remains fairly labor intensive,
and requires extensive global supply chain coordination. With respect to golf balls, although a significant amount
of labor is still used, the overall manufacturing process is much more automated than the golf club assembly
process.
The Company purchases raw materials from numerous domestic and international suppliers in order to meet
scheduled production needs. Raw materials include steel, titanium alloys and carbon fiber for the manufacturing
of golf clubs, and rubber, plastic ionomers, zinc sterate, zinc oxide and lime stone for the manufacturing of golf
balls. 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 48% of the Company’s net sales were derived from sales within the United States in 2010,
and approximately 50% of net sales in both 2009 and 2008. 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 certain products to mass
merchants. On a consolidated basis, no one customer that distributes golf clubs or golf balls in the United States
accounted for more than 6% of the Company’s consolidated revenues in 2010 and 2009 and 5% in 2008. On a
segment basis, the golf ball customer base is more concentrated than the golf club customer base. In 2010, the top
five golf ball customers accounted for approximately 22% of the Company’s total consolidated golf ball sales. A
loss of one or more of these customers could have a significant adverse effect upon the Company’s golf ball
sales.
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. Most regions in the United States are
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. 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
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