strategic-management

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Callaway Golf Company — 2009
Amit J. Shah
Frostburg State University
ELY
www.callawaygolf.com
Who was the most dominant player in women’s golf in the world through 2008–2009, and
what clubs does she use? The answers are Annika Sorenstam and Callaway clubs.
Callaway makes premium-priced golf clubs that are popular with both amateurs and professionals,
as well as high-tech golf balls including the HX, CTU 30, and CB1. Callaway’s
drivers include the ERC II, Hawk Eye VFT, Steelhead, Big Bertha Titanium 454, FT-9, and
the latest FT-iQ.
Callaway recently developed Fusion Technology, which has led to the world’s
smartest, most advanced driver: the new FT-iQ Driver. Through robot testing measuring
hits across multiple face locations, the FT-iQ Driver is the longest driver Callaway Golf
Company has ever made. It also licenses its corporate name for apparel, shoes, and other
golf accessories.
In June 2009, Callaway slashed its dividend. Since 1997, it had paid a constant $.28
per share annually, but, in order to conserve cash, it lowered the payout to just $.04. Also
that month, the company used the proceeds of a $140 million convertible preferred stock
sale to pay off its entire short-term debt. This move was quite embarassing to management,
as Callaway had been acquiring shares from the time current CEO Fellows arrived in 2005
(with no debt on the balance sheet) through 2007.
Callaway will report a loss for calendar 2009, with the cost of the preferred equity
($.09 per share) as well as weak business trends contributing. Analysts do, however, forecast
a strong recovery in 2010 and 2011. The bulk of Callaway’s sales come from golf
clubs, but even sales of golf balls declined more than 20 percent in 2009. Callaway historically
has spent 5 percent of revenues on R&D but now spends only 3 percent.
Callaway’s management surprisingly does not own that much of the company’s
stock. CEO Fellows owns just 1.2 percent and the entire top management team and the
board hold just under 3 percent of the company’s outstanding stock.
History
In 1982, Ely Callaway founded Callaway Hickory Stick USA, Inc., which later became
Callaway Golf Company (CGC). Although the company was incorporated in California in
1982, it was reincorporated in Delaware in 1999. CGC’s products are designed and built on
an eight-building campus in Carlsbad, California, where the majority of its 2,700 employees
work (as of December 2008).
In its early years, Callaway revolutionized the industry with golf clubs that were
“very forgiving” and therefore very welcome to the average golfer. New technologies and
production methods turned the smallest golf club manufacturer into the world’s largest
maker of premium golf clubs and a dominant force in the industry. During the years of
growth, Callaway acquired well-known brands like Odyssey, a manufacturer of putters, in
1997; Strata, a manufacturer of golf balls; and Ben Hogan, a competitor in golf clubs.
In 2000, Callaway entered the golf ball business with the release of its first golf ball.
In 2004, the company acquired all of the issued and outstanding shares of stock of
FrogTrader, Inc. (which subsequently changed its name to Callaway Golf Interactive, Inc.).