Callaway Golf Designs

SWOT ANALYSIS

Callaway Golf designs, manufactures and sells a variety of golf clubs, golf balls and

golfing accessories. It is the market leader in the US retail golf market but faces

intense competition and the challenges of a mature market. In September 2004

Callaway suspended previously announced quarterly and annual earnings guidance

in an effort to fully review its business.

Strengths

Market leadership

Callaway has been a leader in the US retail golf market for the last seven years. In

2003, it continued to lead the woods market in both units sold (18% share) and

revenues (24% share). In the irons market, it had 17.2% share of units sold and

26.1% share of revenues. Callaway’s Odyssey brand led the putter category with 42%

share of units and 49.4% share of overall revenues. With the formation of its Top-Flite

subsidiary, Callaway is now the number two player in golf balls worldwide.

Wide range of offerings

The company offers a wide range of products that encompass all price segments. It

has products for the professional as well as the amateur golfer. Its drivers, fairway

woods, irons and putters compete in all price segments and are available in a variety

of styles and specifications to suit the preferences and skill levels of all golfers. This

means major market penetration.

Strong cash flow and no debt

The company’s strong cash position and lack of debt is an important and valuable

competitive advantage that gives it the flexibility to evaluate acquisition and

investment opportunities. In 2003, it used approximately $154 million of cash (no debt

financing) to acquire Top-Flite Golf Company. In this year, it generated $119 million in

cash flow from operations and finished the year once again with no debt. Up to

September 2004, Callaway consistently paid dividends of $0.07.

Weaknesses

Uncertain operating performance

Callaway Golf has suspended previously announced quarterly and annual earnings

guidance in an effort to fully review the business following the appointment of new

chief executive officer William C. Baker. This was done because of several unknowns,