strategic-management

CASE 28 • CALLAWAY GOLF COMPANY — 2009 275
EXHIBIT 2 Callaway Golf Company Consolidated Balance Sheets (in thousands, except share
and per share data)—continued
CGC has also licensed its trademarks to IZZO Golf, TRG Accessories, LLC, Fossil,
Inc., Nikon Vision Co., Ltd., and Global Wireless Entertainment, Inc. Prior to April 2006,
the company had a licensing arrangement with Tour Golf Group, Inc. (TGG) for a line of
Callaway Golf footwear. In April 2006, the company terminated the licensing arrangement
and acquired certain assets of TGG. CGC recognized royalty income under its various
licensing agreements of $8,847,000, $8,672,000, and $8,292,000 during 2008, 2007, and
2006, respectively.
Callaway Products
Exhibit 3 portrays Callaway’s contribution of net sales by principal product group. CGC’s
sales of drivers and woods increased in 2007, due to a more extensive line of drivers in 2007
relative to 2008. The decrease in new driver introductions contributed to a reduction in overall
average selling prices within the woods category because drivers, particularly premium
Fusion Technology drivers, carry a higher sales price than fairway woods and hybrids. Sales
of putters and irons in 2008 have also declined from 2007. However, sales of golf balls and
accessories have made significant increases from 2007. In 2007, overall sales increased
from the previous year by more than $106 million; however, in 2008, sales decreased from
the previous year by $7.4 million. The company’s drivers, fairway woods, irons, and golf
balls are sold under the Callaway Golf, Top-Flite, and Ben Hogan brands. The putters are
sold under the Odyssey, Callaway Golf, Ben Hogan, and Top-Flite brands.
Golf Datatech reports that the number of golf rounds played in the United States
declined by 4 percent between February 2008 and 2009. According to Golf Datatech, the
EXHIBIT 3 Contribution of Net Sales Attributable to Principal Product Groups
Year Ended December 31
2008 2007 2006
(in thousands)
Drivers and fairway woods $ 268,286 24% $ 305,880 27% $ 266,478 26%
Irons 308,556 28% 309,594 28% 287,960 29%
Putters 101,676 9% 109,068 10% 102,714 10%
Golf balls 223,075 20% 213,064 19% 214,783 21%
Accessories and other 215,611 19% 186,985 16% 145,972 14%
Net sales 1,117,204 100% 1,124,591 100% 1,017,907 100%
Source: Callaway Golf Company, Form 10K (2008).
December 31
2008 2007
Unearned compensation (279) (2,158)
Retained earnings 518,851 470,469
Accumulated other comprehensive income (6,376) 18,904
Less: Grantor Stock Trust held at market value, 1,440,570 shares
and 1,813,010 shares at December 31, 2008 and 2007, respectively (13,383) (31,601)
Less: Common Stock held in treasury, at cost, 1,768,695
shares and 0 shares at December 31, 2008 and 2007, respectively (23,650) —
Total shareholders’ equity 578,155 568,230
$ 855,338 $ 838,078
Source: Callaway Golf Company, Annual Report/Form 10K (2008).