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2018 ANNUAL REPORT 66406.indd 1 3/18/19 6:53 AM 66406.indd 2 3/18/19 6:53 AM ARTIFICIAL INTELLIGENCE REAL BALL SPEED This is Callaway’s fi rst Driver ever to be engineered using breakthrough Artifi cial Intelligence. Designed by harnessing the power of machine learning, Flash Face incorporates a variable face thickness ripple design that maximizes ball speed across the face. This face design goes beyond the realm of current thinking. Born from over 15,000 virtual prototypes, this is a transformative shift in distance technology. 66406.indd 3 3/18/19 6:53 AM OUR BEST FOR THE BEST The Ultimate Forged Players Distance Iron Combining industry leading face-cup distance technologies with precision tungsten weighting generates faster ball speeds and delivers optimal launch and spin off every club. And with game changing urethane microspheres behind the face providing superior soft feel in a new forged package, this iron is like no other. This is the New Apex. A category defining iron that provides unmatched feel with incredible distance, playability and control. 66406.indd 4 3/18/19 6:53 AM THE DISTANCE BALL REINVENTED OUR LONGESTLONGEST BALLL* WITH SOFTSOFT FEELFEEL WE INVENTED A NEW FASTER HYBRID COVER THEN PUT IT AROUND OUR DUAL SOFTFAST™ CORE E.R.C Soft is a new kind of distance ball. It’s engineered with a revolutionary new hybrid cover and our graphene- infused Dual SoftFast Core. It’s a distance ball that feels soft and spins unlike any ball you’ve ever played. 66406.indd 5 3/18/19 6:53 AM OLIVER “CHIP” BREWER III President and Chief Executive Offi cer MY FELLOW SHAREHOLDERS It is my pleasure to report that Our core business, anchored by the Schauff ele, Aaron Wise, Thomas Pieters, 2018 was another year of signifi cant Callaway and Odyssey brands, together Branden Grace, Wesley Bryan, Adam success, growth and momentum for with our acquired businesses, OGIO Hadwin, Emiliano Grillo, Si Woo Kim, Ollie Callaway Golf Company. In fact, it was and TravisMathew, drove our success Schnieiderjans, Daniel Berger, Maverick a record year in terms of revenue and in 2018. US revenues rose 25% for the McNealy and Norman Xiong, as well as operating profi tability. This is a product year, as Callaway was the #1-ranked club proven veterans Phil Mickelson, Henrik of our continued commitment to company, and the #2-ranked golf ball Stenson, Sergio Garcia, Alex Noren, uncompromising innovation, judicious company in the US, all in terms of dollar Danny Willett, Jim Furyk, Kevin Kisner, business practices and strategic growth share. A full year of TravisMathew and Marc Leishman, Kevin Na, and Michelle opportunities in areas tangential to continued double digit growth in that Wie. And we’re pleased to welcome the our business, which has again helped brand also contributed to the 25% US two newest members of our Tour Staff , us leverage the assets of our expanding revenue growth. Year-over-year revenue 2018 Open Champion Francesco Molinari brand portfolio to maximize increased 6% in Europe, in a slightly down and two-time U.S. Open champion shareholder value. market, and 12% in Japan. Our strategy of Retief Goosen. delivering superior technology that the I am very proud of our team for what we In Europe, we’ve become an Offi cial consumer is willing to pay a premium for, accomplished in 2018 as well as over the Partner of the European Tour for the while extending product lifecycles which last seven years as we have transformed next fi ve years, an exciting and strategic has led to less discounting and being able Callaway into a premium golf equipment initiative. Within this wide-reaching to invest back in the business, has paved and active lifestyle company. The team agreement across the family of Callaway the way for building a highly sustainable, has worked hard to achieve these results owned brands, Callaway becomes profi table business for the shareholders. and remains committed to further the offi cial driver, golf ball, shoe and improvement. The culture of curiosity and diligence golf bag brand of the European Tour; we’ve cultivated once again helped us Odyssey and OGIO become the offi cial CONTINUED GROWTH We’re optimistic create a powerful lineup of innovative putter and luggage brands respectively; about the current state of the golf golf products across every key category, and Callaway Apparel, plus the ‘new industry, which was up approximately resulting in must-have clubs like Rogue to Europe’ TravisMathew brand, are 5% in 2018 in hard goods in the U.S., our woods, Rogue irons and Mack Daddy the offi cial on-course apparel of the largest market. Furthermore, the PGA 4 wedges, Odyssey O-Works, EXO and European Tour. Tour has rarely enjoyed such a large Toulon Design putters, and Chrome number of talented and charismatic LARGER FOOTPRINT Globally, our Soft and Supersoft golf balls. Our young players, which is complemented marketing continued to separate us from willingness to invest in golf ball R&D and by a great group of seasoned veterans, our competitors by creating a steady in upgrading our ball plant in Chicopee, driving interest and excitement around stream of easily consumable video and Massachusetts has led to brisk sales the Tour and the sport. Pair that with audio content, including live events, of our Chrome Soft golf balls. our relentless focus on improving all key original content series, weekly podcasts business elements, from global operations TOUR INVESTMENTS As usual, Tour and the online Callaway Community. to marketing to customer service, and success helped keep Callaway and All have helped us reach early adopters the results speak for themselves: 2018 was Odyssey at the forefront of consumer and opinion leaders in ways beyond our best year ever, and all signs indicate mind share in 2018, and will again in 2019. traditional advertising, and allow us to this momentum will continue in 2019. Our Tour Staff consists of arguably the have more direct conversations about fi nest group of up-and-coming young products that promote consideration, players in the game, including Xander trial and purchase. 5 66406.indd 6 3/18/19 6:54 AM TravisMathew and OGIO exceeded Perhaps most exciting is the leap we construction and the negative eff ect on expectations in 2018 and are poised for made in product development protocol feel. The diff erence-maker is our Urethane a strong 2019. Consumers welcomed our by bringing together our personnel Microsphere technology, which allowed eff ort to rebrand OGIO as much more resources in R&D with a super computer us to preserve great feel while installing than a maker of fi ne golf bags, but also capable of Artifi cial Intelligence. Working serious speed-enhancing properties. as a source of contemporary and highly closely with the vendor, we wrote In balls, the new E•R•C Soft, named for our functional backpacks, travel bags and software tasking the computer with founder Ely Reeves Callaway, is the longest business bags. Likewise, TravisMathew designing a new, ball speed-enhancing soft-feeling ball we’ve ever off ered, and continued to thrive in its sweet spot clubface geometry. The computer its new Triple Track alignment technology of casual, southern California-spirited worked nonstop for four weeks, creating has proven highly eff ective at improving a apparel while growing its distribution more than 15,000 virtual prototypes and golfer’s aim on the greens. It’s so eff ective and reputation on a more national scale. learning from each one before arriving that early in the year Phil Mickelson asked We’re enthusiastic about the plans we at the design it deemed best. us to put Triple Track on his Chrome Soft have in place to promote TravisMathew balls; a couple weeks later he won the and OGIO in Europe and Asia in 2019 2019 AT&T Pebble Beach Pro-Am. as well as continuing to expand THE CULTURE OF distribution in the United States. Out of the gate, our new products have received rave reviews. The Epic Flash As we entered 2019, we continued CURIOSITY AND driver and our new Apex 19 irons are the our strategy of investing in growth DILIGENCE WE’VE only two products in their categories to areas complementary to our business earn 20 out of 20 stars on Golf Digest’s and bolstered our brand portfolio by CULTIVATED ONCE 2019 Hot List (fi ve stars in all four acquiring Jack Wolfskin, a premium AGAIN HELPED categories: Performance, Innovation, European brand of active-outdoor and Look/Sound/Feel, Demand). Odyssey’s urban-outdoor apparel, footwear and US CREATE A new Stroke Lab putters, which employ travel gear. We believe Jack Wolfskin fi ts a multi-material, lightweight shaft to extremely well with our current brands POWERFUL LINEUP redistribute weight within the club in a and furthers our stated plan of strategic OF INNOVATIVE radically new way to promote a better investments in complementary areas. stroke, were put in play by numerous Tour Jack Wolfskin provides an innovative GOLF PRODUCTS. pros well before the product launched product off ering with long-term to the public. synergies to the existing soft goods portfolio. We look forward to partnering We were stunned at the computer’s In closing, one of the things I’m most proud with the Jack Wolfskin management fi nal design, which is asymmetrical, with of is the Callaway team’s refusal to take team to maximize this brand’s what appears to be a random pattern of success for granted. We understand that growth potential. waves and ripples of diff erent sizes and nothing is guaranteed and we’re only as depths spanning the surface.