CALLAWAY GOLF COMPANY. Presentation materials for February 15, 2006 Conference for Financial Analysts and Investors.

Transcription

1 CALLAWAY GOLF COMPANY Presentation materials for February 15, 2006 Conference for Financial Analysts and Investors Important Notice: Attached are copies of the power point slides presented at the conference. For a more comprehensive understanding of the information contained in the slides, they should be read in conjunction with the audio replay of the conference, which will be available through 9:00 pm (Pacific Time) on February 22, 2006 and may be accessed through the investor relations portion of the Company s website at

2 Investor Day February 15, 2006

3 Safe Harbor Disclaimer I would like to point out that any comments made about future performance, events or circumstances, including estimated charges or savings relating to the Company s business improvement and cost reduction initiatives announced on September 29th or the Top-Flite integration, as well as the Company s three-year core business targets regarding sales growth, operating income as a % of net sales, return on invested capital and free cash flows, are forward-looking statements subject to safe harbor protection under the federal securities laws. Such statements are based on current market trends and conditions. Actual results could differ materially as a result of changes in market trends or conditions or other risks and uncertainties applicable to the Company and its business. For details concerning these and other risks and uncertainties, you should consult Part I, Item 2, of our most recent Form 10-Q filed with the SEC, as well as the Company s other reports subsequently filed with the SEC from time to time.

4 Safe Harbor Disclaimer During today s presentation, in order to provide information with regard to the Company s core ongoing business, we will provide certain pro forma information as to the Company s performance excluding charges associated with the integration of the Top-Flite operations and charges associated with the Company s cost reduction initiatives. This information may include non-gaap financial measures within the meaning of Regulation G. The attachments to the earnings release we issued on January 25, 2006 includes a reconciliation of such non-gaap financial measures to the most directly comparable financial measures prepared in accordance with GAAP. The earnings release is available on the investor relations section of the Company s website at Finally, today s presentation is being broadcast simultaneously over the Internet. Following the conference, a replay of the broadcast, as well as the presentation materials, will be available through 9:00 pm (Pacific Time) on February 22nd on the investor relations section of the Company s website at

5 Agenda CEO Overview - George Fellows Brand Overview John Melican Research & Development Alan Hocknell Break Manufacturing Bob Penicka Financial Update Brad Holiday Q&A Lunch Clinic/Demo & Product Trial

6 Investor Day CEO UPDATE George Fellows President and Chief Executive Officer

7 Why Callaway Icon for golf innovation Ely Callaway changed paradigm - opportunity to make a difference Strong consumer equity Best trade relations in industry Innovation drives impulse Critical Company skill sets - technology/innovation/culture of winning Growth opportunities

8 Problems/Opportunities Cost structure out of alignment Processes not well coordinated/fragmented Supply chain not leveraged/customer service suboptimal Organizational structure not optimized Management turmoil

9 Cost Structure Actions Taken To Date Sept. 29 th restructuring $60-70 million annual savings by 2007 $50-60 realized in 2006 Re-investment into marketing Majority of savings to profit

10 Actions Taken To Date Processes Were Not Well Coordinated/Fragmented Remapped Product development process - 3 year new products plan Remapped forecasting process - adding new toolsets

11 Actions Taken To Date Supply Chain Not Leveraged/Customer Service Sub-optimal Re-examining off-shore vs. domestic Shorter lead times Reviewing new vendors CAPEX focus on automation/cost reduction Revamped production planning Re-timed introductory calendar/higher levels of core inventory Introduced performance metrics

12 Actions Taken To Date Organizational Structure Not Optimized Completed Top-Flite/Hogan integration Restructured marketing to product management system - enhance P&L accountability and control Sales reporting to CEO Hiring some key positions Established MBO system - more closely align cross departmental objectives to compensation Improved integration of International into product development process

13 Management Turmoil Planned vs. unplanned Actions Taken To Date

14 Immediate Next Steps Gross Margin improvement Automation Sourcing Value analysis

15 Immediate Next Steps More aggressive Marketing/Sales efforts Direct to consumer efforts pull vs. push Grass roots initiatives grow underdeveloped segment Improved coordination of marketing/sales programs Regional focus Sharing of best practices internationally Restructuring international distributor efforts China initiative Coordinated licensing marketing/category expansion

16 Expectations Focus on profitable growth/financial goals Investment in margin improvement Industry leading Customer Service Steady flow of innovative new products - drive impulse More aggressive market presence Disciplined prioritization of growth initiatives Create long term value for shareholders

17 Financial Sales/Profit Growth Metrics Operating Income/percent to Sales Return on Invested Capital Free Cash Flow Operational Customer Service - orders shipped complete/on time (OSCOT) Forecast Accuracy Independent Review of Customer Satisfaction Share Growth

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19 INVESTOR DAY Brand Portfolio Overview John Melican Sr. VP Marketing

20 MARKET DRIVEN BY NEW PRODUCTS 05 U.S. $ Sales Total Industry Yearly $... %... Sales Change Change Woods $ $ % Irons $ $ % Balls $ $ % Putters $ $ % Wedges $ $ % Shoes $ $ % Bags $ $ % Gloves $ $ % Total Industry $ 2, $ % Club (woods, irons, wedges) categories had double digit dollar growth in 2005 Golf Datatech market data captures approximately 65%-70% of U.S. golf industry dollars National rounds played are up +0.4% year, Dec 05 rounds were flat compared to Dec 04. Source: Golf Datatech Category: Woods, Irons, Golf Balls, Putters, Wedges, Shoes, Bags, Gloves Channel: On Course and Off Course Channel Dollars: 36% On Course 64% Off Course

21 CALLAWAY GOLF STRONG PERFORMANCE DESPITE EXECUTION CHALLENGES 05 U.S. $ Sales By Company YTD.. $... %... YTD... Sales Change Change $ Share Acushnet $ $ % 30.7% Callaway Golf $ $ % 19.5% Adidas $ $ % 12.4% Ping $ $ % 8.1% Nike $ $ % 6.4% Cleveland $ $ % 5.4% Mizuno $ $ % 2.3% All Others $ $ % 15.2% Total $ 2, $ % Source: Golf Datatech Category: Woods, Irons, Golf Balls, Putters, Wedges, Shoes, Bags, Gloves Acushnet: Titleist, Cobra, Pinnacle, Footjoy Adidas: Taylormade, Maxfli Callaway Golf: Callaway Golf, Odyssey, Top Flite, Ben Hogan Channel: On Course and Off Course Channel Dollars: 36% On Course 64% Off Course

22 WOODS: CALLAWAY GOLF STRONG #2, PREPARED FOR SOLID U.S. $ Sales YTD.. Sales $... Change %... Change YTD... $ Share Taylormade $ $ % 23.9% Callaway $ $ % 16.5% Cobra $ $ % 13.4% Ping $ $ % 9.8% Cleveland $ $ % 9.2% Titleist $ $ % 6.2% Nike $ $ % 3.5% Ben Hogan $ $ % 2.2% Total Woods $ $ % STRATEGIC FOCUS: 1. Innovation & Technology 2. Execution 3. Consumer Communications KEY ACTIONS: 1. Launch X460/X460 Tour drivers, X Fairway Woods, FT Hybrid, CFT Ti Hybrid 2. Re-invigorate FT-3 3. Launch OptiFit Driver System 4. Hybrid competitiveness

23 IRONS: CALLAWAY GOLF STRONG #1 05 U.S. $ Sales YTD.. Sales $... Change %... Change YTD... $ Share Callaway $ $ % 26.9% Ping $ $ % 13.1% Taylormade $ $ % 11.3% Mizuno $ $ % 7.3% Cobra $ $ % 7.2% Cleveland $ $ % 6.5% Nike $ $ % 4.9% Titleist $ $ % 4.8% Total $ $ % STRATEGIC FOCUS: 1. Innovation & Technology 2. Segmentation 3. Execution KEY ACTIONS: 1. Launch BB 06 Irons, Fusion Wide Sole Irons, X-Tour Wedges, Apex, Apex Edge 2. Year-2 Marketing 3. Customs Performance 4. Re-ground Hogan line (Forged, craftsmanship, feel)

24 BALLS: CALLAWAY GOLF-DEFINITIVE #2 05 U.S. $ Sales YTD.. Sales $... Change %... Change YTD... $ Share Titleist $ $ % 53.4% Callaway $ $ % 10.5% Nike $ $ % 9.1% Pinnacle $ $ % 7.4% Bridge/Precept $ $ % 4.6% Maxfli $ $ % 4.6% Top Flite $ $ % 4.6% Volvik $ $ % 1.4% Total Balls $ $ % STRATEGIC FOCUS: 1. Distribution 2. Trial/Sampling 3. Tour 4. Top-Flite Brand Health KEY ACTIONS: 1. Launch improved HX Tour/56, Big Bertha, HX Pearl, XL Extreme, XL+ 2. Rebuild Top-Flite equity with focus on strong XL sub-brand ( $20) 3. Heavy seeding/sampling of all balls in portfolio 4. RIM: $ cost performance

25 PUTTERS: ODYSSEY DOMINANT #1 05 U.S. $ Sales YTD.. Sales $... Change %... Change YTD... $ Share Odyssey $ $ % 36.4% Titleist $ $ % 21.1% Ping $ $ % 16.6% Taylormade $ $ % 6.6% Nike $ $ % 2.5% Never Comp $ $ % 2.4% Callaway $ $ % 1.1% Yes $ $ % 1.0% Total Putters $ $ % STRATEGIC FOCUS: 1. #1 Putter Brand in Golf 2. Technology Leadership 3. Tour KEY ACTIONS: 1. Upgrade product line through launch of Tri-Ball/2-Ball SRT, White Hot XG 2. Explore entry point into premium non-inserted market space 3. Stretch Odyssey brand through product line and product category extensions 4. Drive Tour usage through model variety, customization, and bestin-class service

26 TARGET AUDIENCE Total Golfers Total Golf Equipment Spending 6.0 Million 7.1 Million Serious Golfers Play 25+ rounds/year Moderate Golfers Play 8-24 rounds/year $2.1 Billion $1.2 Billion 14.2 Million Occasional Golfers Play 1-7 rounds/year $413 Million *Source: National Golf Foundation Golf s Best Customers Play 25+ rounds/yr or spend $1,000/yr At the top of golf s Pyramid of Influence Early adopters, trend-setters May not be the most accomplished, but the most influential

27 CALLAWAY GOLF COMPANY One Company 4 Brands Strongest Brands in the Business Complimentary Cover all Consumer Segments in Golf

28 $ Super Premium Premium Moderate Value Beginner Recreational Avid Player Club Pro Tour

29 Tour Club Pros Tour Club Pros Avid Players Avid Players Recreational Recreational Beginners Beginners Tour Club Pros Tour Club Pros Avid Players Avid Players Recreational Recreational Beginners Beginners

30 2005 MARKETING OVERVIEW

31 BRAND STATEMENT Through an unwavering commitment to innovation, Callaway Golf creates products and services designed to make every golfer a better golfer. Consumer Insight Regardless of skill level, all golfers want to play better golf. Whether it s birdying the last hole to win on the PGA Tour, winning your club championship, taking 2 sides of $5 dollar Nassau, or breaking 100 for the 1st time, all golfers want to play their best.

32 BRAND POSITIONING FROM TO Beginners Recreational Avid Players Club Pros Tour Tour Club Pros Avid Players Recreational Beginners

33 BRAND ARCHITECTURE Bold Passionate Innovative Leader Statement Distance 1 st Mover Technology Super Premium Fusion Performance Contemporary Core Technology Premium X Game Enjoyment Forgiving Fun Friendly Big Bertha

34 BRAND ARCHITECTURE Statement Performance Game Enjoyment Tour Club Pros Avid Players Tour Club Pros Avid Players Tour Club Pros Avid Players Recreational Recreational Recreational Beginners Beginners Beginners

35 STATEMENT

36 PERFORMANCE

37 GAME ENJOYMENT

38 CALLAWAY GOLF MARKETING 2005/2006 OBJECTIVES Re-energize the core brand Reinforce Callaway Golf as the Technology Leader (Product Leadership) Integrate all communications and messaging Enhance credibility with Golf s Best Customers Influence better and younger players Build Callaway user consumer database Increase visibility on the US PGA Tour

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40 BRAND STATEMENT To be the #1 putter brand in the world by pushing and challenging putter convention to create magic on the green.

41 BRAND POSITIONING Continue to push leading putter insert technology Stretch the brand by reinvigorating key price points Explore new performance segments Tour Club Pros Avid Players Recreational Beginners

42 TOP-FLITE

43 BRAND POSITIONING The Top-Flite brand appeals to: The everyman golfer who plays the game for fun Golfers who still want quality equipment at value price points Those with a sense of anti-establishment blue-collar attitude and bragging rights attributes (distance) Tour Club Pros Avid Players Recreational Beginners

44 BRAND MISSION What It Is: To re-establish Top Flite as the #1 golf ball brand in the value segment How We ll Do It With Products: Through innovative design that provides golfers superior value without sacrificing performance How We ll Do It With Marketing: By connecting with golfers on both an emotional and practical level

45 BEN HOGAN

46 BRAND STATEMENT To create the highest-quality, best looking, and best feeling golf equipment for the most discerning of golfers

47 BRAND POSITIONING Ben Hogan equipment appeals to: The traditionalist The aspiring player Those who favor looks, feel and feedback over forgiveness and game improvement. Tour Club Pros Avid Players Recreational Beginners

48 4-STEP INTEGRATED MARKETING 1 Create Awareness Advertising Public Relations Tour Web 2 Reinforce Interest In-Shop Displays/POS Signage Co-op/Retailer Mktng Promotions 3 Provide Trial Opportunities Demo Days Fitting Carts Seeding/Sampling Grass Roots Initiatives 4 Establish Relationship, Post-purchase Loyalty/Affinity Programs Product Registration Program Web/Interactive Communications CG Magazine

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50 Investor Day 2006 Research and Development Dr Alan Hocknell VP, Innovation and Advanced Design

51 Research and Development Innovation and the future health of the game What has Callaway Golf offered to earn a reputation as an innovator? How can Callaway Golf continue to offer the most innovative products to consumers?

52 Innovation and the future health of the game Player s Perspective Business Perspective Ruling Bodies Perspective

53 Innovation and the future health of the game Player s Perspective Golf is a difficult game and golfers are looking for an edge from their equipment We seek to make aspects of the game easier Appeal to broader segment of the population Increased enjoyment Fewer golfers leave the game Motivated golfers have reasons to re-invest in themselves Impulse purchases The aspirational effect golfers want the clubs the Tour Pros and PGA Pros use

54 Innovation and the future health of the game Business Perspective Innovation as part of the Brand Identity a better game by design At the forefront of every major equipment innovation in the last 25 years Innovation as a means to counter Price Compression Products differentiated from the competition through technology, performance, consumer connection

55 Innovation and the future health of the game Ruling Bodies Perspective Product Innovation has enabled some of the observed gains in elite player performance over the last 20 years Product Innovation can be regulated in ways that course setup and player athleticism cannot Equipment regulation is a tool to maintain an appropriate skill balance between driving distance, driving accuracy, greens in regulation and putting for elite players

56 Innovation and the future health of the game Opportunities in the face of increasing regulation Our aim is to make every golfer a better golfer There is room within the rules to appeal to new player types - especially leveraging all 4 Brands There is room within the rules to design more of our golf knowledge into our clubs and balls than present Our design, analysis, measurement and fabrication technologies give us a competitive performance edge in designing right up to the limits of any rules

57 What has Callaway Golf offered to earn a reputation as an innovator?

58 First Oversized Titanium Heads Screw Weight Technology for shot shaping Tungsten Gravity Screws - 7 Years ago

59 Forged Titanium Drivers Cup Face Technology Hot Face Engineering Variable Face Thickness 2000 onwards

60 Fusion Technology The world s most advanced driver technology Titanium cup face and carbon fiber body Capability for extreme forgiveness and shot shaping FT-3 Wins 5 of 8 majors in first 6 months New, more aggressive, prototypes in development

61 Iron Technology 360 Undercut Bore Thru S2H2 Tungsten-Titanium Irons Titanium-Nickel-Tungsten-Polyurethane Irons

62 Irons Innovation for different player types Elite Player Performance Iron Game Enjoyment

63 Odyssey Putter Innovations : Dual Force White Hot Tri-Hot 2-Ball White-Steel SRT

64 Golf Ball Innovation Tubular Lattice Hex Pattern Breakthrough Aerodynamics Visual Differentiation Measurement Science Analytical and Experimental Tools 3-Piece Construction Technology Ultra-Thin Thermoset Urethane Cover Continuous Process Improvement

65 Global Patent Protection Issued US Patents: Filed US Patent Applications: Issued Worldwide Patents: Filed Worldwide Patent Applications:

66 How can Callaway Golf continue to offer the most innovative products to consumers?

67 Organization Re-Mapped Product Development Process Innovation and Advanced Design Team 3 yr Product and Technology Plans Full pipeline of product More effective use of R&D resources External partnerships in design and technology development Platform approach to technology development

68 Leverage our Portfolio of Brands Embody brand spirit in design Greater design freedom using all 4 brands

69 Use Technology to serve Every Golfer s Needs Draw Neutral Fade Fusion Technology - Extreme weight movement for shot shaping and forgiveness Performance equivalent to a larger volume Titanium driver

70 Use Technology to serve Every Golfer s Needs Higher Ball Speeds from More of the Face Average Golfers use a lot of the face

71 Use Technology to serve Every Golfer s Needs Trial before purchase More sophisticated consumers and retailers OptiFit Driver System Interchangeable Shaft-Head for advanced fitting

72 Design for Performance and Cost Clubs Reduce the cost of technologies currently too expensive for our market pricing Design for assembly, aiming for performance benefits and significant cost reductions Balls New radical golf ball constructions delivering performance at lower cost Continuous material and process improvements leveraging our extensive patent portfolio

73 Conclusion Callaway has a rich history of Product Innovation Innovation at Callaway is alive and thriving on the challenges presented by the rules, margin targets and making every golfer a better golfer We have a 3 year strategic product and technology plan which targets performance improvements and significant cost reductions We will continue to make the Best Ball and Best Clubs in the world

74 We are currently on a short break - the webcast will resume shortly.

75 Investor Day Manufacturing Bob Penicka Sr. Executive VP, Chief Operations and R & D

76 Supply Chain Update 2005 A problematic year Lean/KanBan Implementation Shortages and shipping delays $$$ spent to expedite

77 Supply Chain Update 2006 Significant improvements implemented Planning process restored and improved Process is forecast driven and dynamic Safety Stocks are in place Negotiated lead time reductions on critical components

78 Supply Chain Update Focus Service, service, service Goal Best in Industry Key metrics in place Great visibility and focus on On-Time Delivery Positioned for growth in Custom Order clubs

79 Seamless Product Development Process Ideation to P.A.R. (Product At Retail) Process focus and improvements have yielded: More capable supply base More front end focus in the process Successful product launches PAR and Safety Stocks

80 Sourcing Strategy Drive margin improvements, protect service levels Off-shore sources High labor content cost reductions High volume skus A items Product launch inventory Retain B & C item manufacturing in U.S. Component utilization Quick order turnaround Automation and margin improvement plans will change current landscape

81 Club Assembly Process Big advances underway... Labor intensive and cumbersome Automation Enabled by new design Cost reduction Throughput improvement Better quality Best in Class Savings significantly in excess of material and labor cost increases

82 Golf Ball Manufacturing State-of-the-Art and Getting Better Top-Flite acquisition Critical mass Intellectual property and manufacturing know-how New technologies RIM process is a major break through Automation projects underway RIM Factory layout/material handling Significant margin enhancement opportunities

83 Continuous Improvement is our Mission... Metrics are our Validation On-Time Delivery Quality Cost of Goods Value analysis Forecast Accuracy Inventory Utilization

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85 Investor Day CFO UPDATE Brad Holiday Sr. Executive VP & Chief Financial Officer

86 Financial Performance 85

87 2005 Income Statement Pro Forma (as of 12/31/05) * ($'s in Millions) Actual Last Year Variance Net Sales $998.1 $934.6 $ 63.5 Gross Margin Gross Margin% 42.4% 40.1% Total OPEX (14.3) OPEX % 38.6% 39.7% Operating Income Op. Income % 3.8% 0.4% Other Income (2.7) 1.0 (3.7) Pretax Income Pretax Income % 3.5% 0.5% Income Tax Provision 9.1 (2.6) (11.7) Net Income $26.1 $7.4 $ 18.8 Net Income % 2.6% 0.8% shares $0.38 $0.11 $ 0.27 *Excludes integration and restructuring charges

88 Working Capital (as of 12/31/05) ($'s in Millions) Actuals Last Year Variance Cash $49.5 $31.7 $ 17.8 Borrowing (13.0) Net Cash $49.5 $18.7 $ 30.8 Accounts Receivable $98.1 $105.2 $ 7.1 Inventory (60.3) A/P and Accrued Expenses Working Capital $237.5 $210.9 $ (26.6)

89 2005 Cash Flow (as of 12/31/05) ($'s in Millions) Actual Last Year Variance Cash Flow from Operations Net Income $ 13.3 $ (10.1) $ 23.4 Depreciation (12.9) Change in Assets & Liab 9.7 (53.6) 63.3 Change in Other (12.0) Cash Flow from Operations Cash Flow from Investing Fixed Assets (32.9) (25.6) (7.3) Business Acquisitions - (9.2) 9.2 Cashflow From Investing (32.9) (34.8) 1.9 Cash Flow from Financing Net Stock Activitiy Dividends (19.6) (19.1) (0.5) Net Financing Arrangements (13.0) 13.0 (26.0) Cash Flow from Financing (17.8) 7.9 (25.8) Currency Translation Adj (1.8) 2.6 (4.3) Change in Cash $ 17.8 $ (15.7) $ 33.5 Beginning Cash (15.7) Ending Cash $ 49.5 $ 31.7 $ 17.8

90 Three Year Core Business Targets * Target will cover four categories Sales Growth Operating Income as a Percent of Sales Return on Invested Capital Free Cash Flow *Excludes integration, restructuring and FAS123R charges

91 Three Year Core Business Targets Sales Growth 3 yr growth targeted in mid single digits How will we accomplish? Industry growth driven by new product innovation Grow wood market share Accelerate growth in Callaway Golf ball business Stabilize Top-Flite ball business Drive international growth Expand licensing/accessories business

92 Three Year Core Business Targets Sales Growth Mid-single digits % Industry Growth % 15% 10% 5% 0% US Golf Industry Industry experienced strong growth in 05 driven by new product innovation Long term demographics favor an increase in rounds played as Baby Boomers retire Callaway Golf will benefit from overall Market Growth Source: Golf Datatech

93 Share % Three Year Core Business Targets Sales Growth Mid-single digits % Product Category Opportunities 30% 25% 20% 15% 10% 5% 0% Callaway Golf US Woods Market Share 24.0% 7.5% % Growing Wood Market Share to 03 levels in 3 years estimated at $80 to $90 million in global sales Supply issues Contributed to decline, but have been addressed New 2006 products FT3 Driver FT Hybrid X460 Driver/FW Woods Hogan Hybrid

94 Three Year Core Business Targets Sales Growth Mid-single digits % Product Category Opportunities Share % 20% 15% 10% 5% Callaway Golf US Ball Market Share 10.5% 6.0% 4.5% Matching ball share growth in 3 years represents $30 to $40 million in global sales Callaway line has been gaining momentum Premium balls has been fastest growing segment Key focus 0%

95 Three Year Core Business Targets Sales Growth Mid-single digits % Product Category Opportunities 15% Top-Flite US Ball Market Share 9.4% Stabilizing and regaining Top-Flite Market Share to 03 levels represents $30 to $40 million in sales Share % 10% 5% 4.8% 4.6% 0%

96 Summary Sales Growth Opportunities Mid-single digit % There will be some growth in the overall Global Market Static share represents sales growth for Callaway Golf Growth in specific product categories represent sales growth opportunities Sales Potential Grow wood share $80-$90 million Continued Callaway Golf Ball share growth $30-$40 million Regain Top-Flite Ball share $30-$40 million Growth in all other product categories Irons/wedges/putters/accessories/royalties $50-$60 million

97 Three Year Core Targets Operating Income - % of Sales Three year target returning to the mid teens How do we get there? Leverage Growth in Sales Increased mix of higher margin product (woods) Operating Expense Savings Gross Margin Improvement

98 Three Year Core Business Targets Operating Income - % of Sales Three year target returning to the mid teens %

99 Three Year Core Business Targets Operating Income - % of Sales Three year target returning to the mid teens % How do we get there? Operating Income % 4% 2005

100 Three Year Core Business Targets Operating Income - % of Sales Three year target returning to the mid teens % Sales Growth Increase in sales will leverage Operating Income % 4% Sales Growth Leverage COGS fixed costs Operating Expenses Will contribute to operating margin improvement 2005

101 Three Year Core Business Targets Operating Income - % of Sales Three year target returning to the mid teens % Woods Mix Operating Income % 4% Sales Growth Leverage Woods Mix Increase Increasing the mix of product sales to higher margin woods will contribute to operating margin improvement 2005

102 Three Year Core Business Targets Operating Income - % of Sales Three year target returning to the mid teens % Operating Expenses Operating Income % 4% Sales Growth Leverage Woods Mix Increase Opex Initiatives September 29 th actions to lower operating expenses contribute to operating margin improvement Majority of savings will flow to profit 2005

103 Operating Income % 4% Three Year Core Business Targets Operating Income - % of Sales Three year target returning to the mid teens % Gross Margin Sales Growth Leverage Woods Mix Increase Opex Initiatives 07 Gross Margin Initiatives Mid Teens Gross Margin initiatives will lower cost Automation Sourcing Product Design Features Lower Golf Ball COGS All will contribute to operating margin improvements

104 Three Year Core Targets Return on Invested Capital Three year targeted ROIC in low twenty % range Definition: Pre-Tax Income/equity + debt

105 Three Year Core Targets Free Cash Flow Three year targeted Free Cash Flow between $90-120MM annually Definition: Cash Flow from Operations less CAPEX Assumes CAPEX and D&A approximately $25MM each

106 Peer Group Discussion Peer Group Definition Looked for consumer, cyclical, sporting goods companies who manufacture as well as sell to retail Peer Groups Used Mercer Group S & P consumer durables and apparel group Data Used Data gathered from Bloomberg 3 year and 5 year averages

107 Peer Group Comparison Sales Growth CG Business Core Targets Mid-Single % Peer Group 7 9% Op. Inc. % Mid-Teens % 9% ROIC Low Twenties % 15% Free Cash Flow $80-$100MM $50-$60MM -Peer group adjusted for acquisitions -Cash Flow adjusted per billion $ s in sales

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109 Summary Callaway Golf is and will continue to be an innovation and technology company Driving top-line growth remains a priority Through consumer focused marketing Leveraging brand portfolio and aligning with consumer and channels Disciplined growth through acquisitions Golf centric is priority, but may expand beyond Bringing skills or other attributes is key Committed to increasing shareholder value Key financial metrics Share repurchase/other

110 Q&A