Callaway 2015 Annual Report Download - page 18

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2
of metal and a composite material. The Company’s products compete at various price levels in the woods category. The
Company’s drivers, fairway woods and hybrid products are available in a variety of lofts, shafts and other specifications to
accommodate the preferences and skill levels of all golfers.
Irons. This product category includes sales of the Company’s irons and wedges, which are sold under the Callaway Golf
brand. The Company’s irons are generally made of metal (either titanium, steel or special alloy) or a composite material (a
combination of metal and polymer materials). The Company’s products compete at various price levels in the irons category.
The Company’s irons are available in a variety of designs, shafts and other specifications to accommodate the preferences
and skill levels of all golfers.
Putters. This product category includes sales of the Company’s putters, which are sold under the Odyssey brand. The
Company’s products compete at multiple price levels in the putters category. The Company’s putters are available in a variety
of styles, shafts and other specifications to accommodate the preferences and skill levels of all golfers.
Golf Balls. This product category includes sales of the Company’s golf balls, which are sold under the Callaway Golf
and Strata brands. The Company’s golf balls are generally either a 2-piece golf ball (consisting of a core and cover) or a
multilayer golf ball (consisting of two or more components in addition to the cover). The Company’s golf ball products include
covers that incorporate a traditional dimple pattern as well as covers that incorporate innovative designs, including the
Company’s proprietary HEX Aerodynamics (i.e., a lattice of tubes that form hexagons and pentagons). The Company’s products
compete at multiple price levels in the golf ball category.
Accessories and Other. This product category includes sales of packaged sets, golf bags, golf gloves, golf footwear, golf
apparel, travel gear, headwear, towels, umbrellas, eyewear and other accessories, as well as sales of pre-owned products
through the Company's website, www.callawaygolfpreowned.com. Additionally, this product category includes royalties from
licensing of the Company’s trademarks and service marks on products including golf apparel and footwear, golf gloves,
prescription eyewear and practice aids.
Product Design and Development
Product design at the Company is a result of the integrated efforts of its brand management, research and development,
manufacturing and sales departments, all of which work together to generate new ideas for golf equipment. The Company
designs its products to be technologically advanced and has not limited itself in its research efforts by trying to duplicate
designs that are traditional or conventional and believes it has created a work environment in which new ideas are valued and
explored. In 2015, 2014 and 2013, the Company invested $33.2 million, $31.3 million and $30.9 million, respectively, in
research and development. The Company intends to continue to invest substantial amounts in its research and development
activities in connection with its development of new products.
The Company has the ability to create and modify product designs by using computer aided design (“CAD”) software,
computer aided manufacturing (“CAM”) software and computer numerical control milling equipment. CAD software enables
designers to develop computer models of new product designs. CAM software is then used by engineers to translate the digital
output from CAD computer models so that physical prototypes can be produced. Further, the Company utilizes a variety of
testing equipment and computer software, including golf robots, launch monitors, a proprietary virtual test center, a proprietary
performance analysis system, an indoor test range and other methods to develop and test its products. Through the use of these
technologies, the Company has been able to accelerate and make more efficient the design, development and testing of new
golf clubs and golf balls.
For certain risks associated with product design and development, see below, “Risk Factors” contained in Item 1A.
Manufacturing
The Company has its primary golf club assembly facility in Monterrey, Mexico, and maintains limited golf club assembly
in its facilities in Carlsbad, California. The Company's golf clubs are also assembled in China, Japan and other local markets
based on regional demand for custom clubs. In addition, the Company utilizes golf club contract manufacturers in China.
In 2015, 2014 and 2013, most of the Company’s golf club production volume was made in regions outside of the United
States. Overall, the golf club assembly process is fairly labor intensive and requires extensive global supply chain coordination
and utilizes raw materials that are obtained from suppliers both internationally and within the United States.