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Callaway - YOU GET WHAT YOU PAY FOR?

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It's an understatement to say it hasn't been the best of times in the history of Callaway Golf. The Company reported last week another year where it lost money from being in business. These things happen, especially with an economic recession. While it can be debated what the root of the problems are for the once iconic brand, there is a cruel irony happening. Under the heading of the rich get richer, Casey Alexander, equity analyst at Gilford Securities pointed out in his recent research that management is continuing to be compensated regardless of the fruits of their labor.

 

“Apparently the Board of Directors believes the solution is to follow up last years highly criticized management retention bonus with more compensation awards,“ Alexander wrote today to investors. “Immediately after the earnings were released management was not only awarded a significant package of equity stock options that priced lower because of the lousy earnings (For instance, CEO Fellows priced 544,162 shares exercisable at $7.51), but then management was awarded another block of Phantom Stock Units. The Phantom Stock Units were initially created last year as a device to retain management because management was incapable of actually earning their bonuses through performance, and if the Board of Directors didn't give them more compensation, they might be lured away to other companies. This year, they threw them the Phantom Stock Units without any explanation regarding retention. The CEO received Phantom Stock Units totaling 213,049 shares, which represents a market value of $1.6MM of additional compensation. Apparently, now shareholders must simply be expected to pay management regardless of the level of performance.”

Source: Terry McAndrew

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Board of Directors must be reading the GD Hot List :rolleyes:

 

 

There's no way I can follow up with anything really better, so I'll just say my piece:

 

Sounds like the end is near for Callaway. This isn't based on any one fact (just stuff I've obvserved), but companies that have their top dogs looking out for #1 regardless of performance don't seem to last very long afterwards.

 

Maybe they're rewarding themselves for their eventual sale to Dick's? Sorry, I couldn't resist rehashing an old topic.

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Agree that this looks to be the death knell for Callaway, where everyone grabs what they can and run, regardless of performance.

Perhaps they can reorganize and save themselves but this action is a step in the wrong direction. Have read where the ball division is a money loser but that's the only Callaway product I consider at this point. Too bad, they lost their technology leader cache over the years and with that, their loyal following. Still make an ok product but too many competitors putting out as good or better product for lower cost.

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It's not just that the execs are getting extra $. It's also the fact that they've laid off a lot of good people who've done the actual dirty work that ticks me off. Happens too often in too many other industries as well.

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It's not just that the execs are getting extra $. It's also the fact that they've laid off a lot of good people who've done the actual dirty work that ticks me off. Happens too often in too many other industries as well.

 

 

Excellent, excellent point!

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This was a once proud company. IMO they got too involved in hype and not good quality product. I don't criticize anyone for making money, but they turned into a product river with little inovation or improvement other than graphics. I know of many cases where the sales force stocked up accounts (green grass on course) with extra products than needed with promise the rep would come pick up items not sold or work out credits then couldn't be found until it was time to place the next seasons order. Sad but true. So many people own the products, but get them a generation or two later at a DEEP discount - Callaway has killed themselves by flooding the pipeline with product - way more than the market can bear. IMO they have rested on their laurels and felt this could carry them on forever.

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Callaway's problem has always been "They are better than everyone else"and I don't mean in the technology way but in a elitist way.I worked in the golf industry and found that true with the type of person buying Callaway.I also believe that is killing the golf industry and it has always been a hurdle because of the attitude that golf is an elitist sport.

The pricing from all OEMs has gone out of control.How is someone who is thinking about picking up the game going to react when they see the pricing for new top branded equipment? They are going to turn around and leave the store and not want to pick up the game. The game itself is hard enough.

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I agree the game is hard enough. But actually prices have come down quite a bit in the past 2 years. And especially new equipment that gets marked down so quickly after it is launched.

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I am EXTREMELY tuned in to this company, from a financial perspective. I have met the individuals in charge numerous times. While there is certainly some truth to this post, there are also some things your missing. Paying in stock is not at all abnormal and there are restrictions on the stock. The management of this Company has laid out plans year after year of what they're going to do and basically they have met those plans. Obviously, there was a huge curveball thrown their way with the real estate market and the subsequent fall of the economy, in general. This has certainly led to losses. However, some of this is paper loss. Many expenses, including the stock payment expense, is non-cash. i.e. they really didn't lose this money - it's all paper. At the end of the day, they did generate positive cash. Now, to take this further, there is no other company to really compare them to. All of the biggest names in golf are either part of a MUCH larger company - TaylorMade, Nike Golf, Titleist or are private - Ping, Cleveland. The lone exception is Adams. Adams did have a better year, but based on size, they're hardly comparable. The point is that TM, Nike, Titleist, etc, could be losing money, but you wouldn't know it because you don't get to see those results. So, it's easy to pick on the only one that is its own entity. I believe Callaway is still in the top 3 in the major categories - irons, woods, balls, accessories. The only one they're probably not is apparel. So, even though this would be considered a success, they're still losing money. This is largely a result of circumstance and visibility to the public, more so than some sort of mismanagement. One commenter mentioned the layoffs - part of that is due to this as well. They will move much of their facilities to Mexico to, guess what - save money. You can't bash them for posting a loss and then bash them when they try to correct it. They're far from the only company to do this and actually hung on as long as they could in the US.

 

No, I do not work for Callaway, nor do I work in the golf industry, but I do work in the financial world and am an avid golfer. Anyway - my $.02.

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It's an understatement to say it hasn't been the best of times in the history of Callaway Golf. The Company reported last week another year where it lost money from being in business. These things happen, especially with an economic recession. While it can be debated what the root of the problems are for the once iconic brand, there is a cruel irony happening. Under the heading of the rich get richer, Casey Alexander, equity analyst at Gilford Securities pointed out in his recent research that management is continuing to be compensated regardless of the fruits of their labor.

 

“Apparently the Board of Directors believes the solution is to follow up last years highly criticized management retention bonus with more compensation awards,“ Alexander wrote today to investors. “Immediately after the earnings were released management was not only awarded a significant package of equity stock options that priced lower because of the lousy earnings (For instance, CEO Fellows priced 544,162 shares exercisable at $7.51), but then management was awarded another block of Phantom Stock Units. The Phantom Stock Units were initially created last year as a device to retain management because management was incapable of actually earning their bonuses through performance, and if the Board of Directors didn't give them more compensation, they might be lured away to other companies. This year, they threw them the Phantom Stock Units without any explanation regarding retention. The CEO received Phantom Stock Units totaling 213,049 shares, which represents a market value of $1.6MM of additional compensation. Apparently, now shareholders must simply be expected to pay management regardless of the level of performance.”

Source: Terry McAndrew

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I am extremely disappointed with this post/information. You throw these compensation numbers out there like they are ridiculous. Maybe, maybe not. How about some comparable numbers? Maybe these are at the low end of the industry. Maybe these are minimal compared to what other executives receive at other companies. If you can't get the comparables, say so. As ZForce said, Callaway's structure is unique to the industry. You think all these other "names" are making a bunch of money in this uber competitive industry? Doubt it but John Q public can't find out. Irresponsible reporting at best. Shame on you.

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Why is it that its always the LABOR that get's stuck with the label that this is the area that needs to have cuts made? Why doesn't MANAGEMENT ever need to make the same cuts. They always seem to be well compensated while the labor force gets axed. So they are moving to Mexico to save money. Now I'm not sure what all the figures are for labor costs vs. management? So what if they cut all the OVER PAID Executives off the payroll? I'm sure they have a bunch of FAT that can be TRIMMED OFF with some of the salaries these guys make for working 1/2 the hrs the laborers work. Half of these Corporate Title holders do absolutely nothing besides suck the company dry. For some reason they always blame the workers and that the wages are just too high to compete, but for once I'd like an independent evaluation on really where the wasted spending is occurring. It seems just like government when the leaders get in a jam they always say the way to solve their economic problems is to cut the labor force, you never here lets get rid of the guys navigating the ship it's the ship mates or deck hands that caused the loss. So when they say the rich keep getting richer and the poor keep getting poorer it sure seems to ring true to the common folk.

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I think they (along with some others) have spread themselves too thin. Releasing so many new products every year has to be hard on the bottom line. We're talking new tooling, inventory close outs, etc. not to mention the marketing they have to spend to attempt to convince golfers this new driver goes further and straighter than the one we released 9 months ago. Tough thing to do in today's financial climate.

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Callaway and Taylor Made are simply killing themselves when they keep releasing new products every few months. Each new release are actually cannibalizing the older releases, and way before the development costs for these older products are fully recovered through sales.

 

For consumers like me however, there are more upsides than downsides, as the fiercely competitive market forces the price of new products down.

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When I started working for american golf in the UK, Callaway drivers were cramming the stand... As it stands just now, my shop has 2 Octanes, 1 FTi-Z and a few old Diablos... T/Made on the other hand, we have 8 Burner '09 Drivers, 8 Superfasts, 4 R11's (because we have sold loads) and 10 Superfast 2.0's... To me this shows that Callaway can't compete, not just in the market in general, but seem unwilling to do the deals which T/Made are obviously doing to push their technology... I was always a Callaway man, from the GBB's to the VFT etc, but I wouldn't touch them now, composites are not the way forward, ask T/Made, Nike, Titleist and Cobra if the adjustability factor is going away anytime soon... Right now I'd have an R11, and not just because its pretty, but because its easy to set up, awesome to hit and increibly innovative... Everything the Octane is not...

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personally i have never liked anything callaway, the only clubs i have used from them that is designed properly are the x prototype irons and wedges, i think all these club manufacturers are in system overload. maybe if they would focus on one or two lines of quality fitted products for all skill level's instead of releasing last year's crap that's touted as new and improved for your golfing woe's, they would get some where. the only technology that's come out in the past 5 year's that's really helped me is the shaft's and the adjustable driver's like the cobra s2 that i play.

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I second the +1 to TW. Where I work, we have a decent number of car components that come from Mexico- notably, the material that covers the armrests, the "arm rests" for the inside of door panels (the soft part), the upper substrate for the interior of the door panel (a different model)... just to name a few. They have to pay a 3rd party to sort all of their stuff, because it's junk. Whenever we get a rejection, it's usually (but not always- we aren't perfect) because of some issue with their parts. While we get charged for the initial rejection, we recoup our losses by charging them. It's been 11 years and I STILL don't have any clue as to how this is is working out, other than by charging an arm and a foot (not the whole leg) for each part. It's baffling to me.

 

I'm no economist, but from my perspective it seems that it'd be more effective to have your components made in the same place you're stationed. If it's the US, have everything made in the US. If it's Australia, have it all made in Australia. Yes, the wages would be a little higher, but the quality would be higher (on average... a person making $8/hour or more with benefits is more likely to care about what they're doing than someone making $8 a day with no benefits). This would reduce scrap costs, which from my experience can get enormous. Savings on shipping charges would also be reduced. I don't know the details, but I can't figure out why this is "bad".

 

I'm not trying to disparage anyone; this is all based on my stunted personal experience. Maybe it'd be different with Callaway... but from my point of view, I doubt it.

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Maybe we are going back to those days when a new designed set of clubs is every 2 or 3 years not every 6 months.Most of these changes are cosmetic. Callaway has been doing this along with Taylor Made & etc..What are they paying the touring pro to play their product?

Golf is a luxury !!!. Make more and charge less.OOOPPS!! Then the head cheese would have to settle for no raise!Ihaven't had a raise in 5 years but I am working !

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