Callaway 2013 Annual Report Download - page 17

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3
In February 2013, the Company sold the building housing its golf ball manufacturing operations in Chicopee,
Massachusetts and entered into an agreement to lease back a reduced portion of the square footage to better align with
current manufacturing volumes. In addition, the Company utilizes golf ball contract manufacturers in China and Taiwan.
At December 31, 2013, approximately 60% of the golf ball production volume was manufactured in regions outside of
the United States, compared to 75% in 2012. The overall golf ball manufacturing process is much more automated than
the golf club assembly process, although a significant amount of labor is used, and utilizes raw materials that are obtained
from suppliers both internationally and within the United States.
The Company has its primary distribution center in Dallas, Texas for the distribution of goods in North America, a
distribution center in Melbourne Australia and third-party logistical operations in Tokyo, Japan, London, England,
Shanghai, China, and Seoul, Korea to support the distribution needs of those markets.
Raw Materials
The Company purchases raw materials from 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 “Risk Factors” contained in Item 1A.
Sales and Marketing
Sales in the United States
Of the Company’s total net sales, approximately 48% was derived from sales to customers within the United States
in 2013, and approximately 47% in both 2012 and 2011. 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 7% of the Company’s
consolidated revenues in both 2013 and 2012, and 6% in 2011. The Company's top five customers accounted for more
than 17% of the Company's consolidated revenues in 2013, and 14% in both 2012 and 2011. On a segment basis, in 2013,
the top five golf club and golf ball customers accounted for approximately 17% and 27% of the Company’s total
consolidated golf club and golf ball sales, respectively. A loss of one or more of these customers could have a significant
adverse effect upon the Company’s consolidated 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 the majority of
these corporate 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 club fitting specialists who focus on the Company’s custom club sales.
A portion of the Company’s custom club sales are generated from the utilization of club fitting programs such as
performance centers, which utilize high speed cameras and precision software to capture relevant swing data. All
performance centers and participating on-and-off course retail stores are equipped with custom fitting systems that
incorporate the use of an extensive variety of clubhead and shaft combinations in order to find a set of golf clubs that fits
a golfer’s personal specifications. The Company believes that offering golfers the opportunity to increase performance
with custom club specifications increases sales and promotes brand loyalty.
The Company maintains various sales programs including a Preferred Retailer Program. The Preferred Retailer
Program offers longer payment terms during the initial sell-in period, as well as potential rebates and discounts for
participating retailers in exchange for providing certain benefits to the Company, including the maintenance of agreed
upon inventory levels, prime product placement and retailer staff training.