Callaway 2014 Annual Report Download - page 29

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competitive, the Company also needs to continue to incur significant expenses in tour, advertising and promotional support.
Unless there is a change in competitive conditions, these competitive pressures and increased costs will continue to adversely
affect the profitability of the Company’s golf ball business.
Accessories. The Company’s accessories include golf bags, golf gloves, golf footwear, golf apparel and other items. The
Company faces significant competition in every region with respect to each of these product categories. In most cases, the
Company is not the market leader with respect to its accessory markets.
The Company’s golf club and golf ball business has a concentrated customer base. The loss of one or more of the Company’s
top customers could have a significant effect on the Company’s golf club and golf ball sales.
On a consolidated basis, no one customer that distributes golf clubs or golf balls in the United States accounted for more
than 8% of the Company’s consolidated revenues in 2014, 2013 and 2012. The Company's top five customers accounted for
more than 25% of the Company's consolidated revenues in 2014, and 23% in 2013 and 25% in 2012. On a segment basis, in
2014, the Company's top five golf club and golf ball customers accounted for approximately 25% and 30% of the Company’s
total consolidated golf club and golf ball sales, respectively. A loss of one or more of these customers could have a significant
adverse effect on the Company’s golf club and golf ball sales.
International political instability and terrorist activities may decrease demand for the Company’s products and disrupt its
business.
Terrorist activities and armed conflicts could have an adverse effect upon the United States or worldwide economy and
could cause decreased demand for the Company’s products as consumers’ attention and interests are diverted from golf and
become focused on issues relating to these events. If such events disrupt domestic or international air, ground or sea shipments,
or the operation of the Company’s manufacturing facilities, the Company’s ability to obtain the materials necessary to
manufacture its products and to deliver customer orders would be harmed, which would have a significant adverse effect on
the Company’s results of operations, financial condition and cash flows. Such events can negatively impact tourism, which
could adversely affect the Company’s sales to retailers at resorts and other vacation destinations. In addition, the occurrence
of political instability and/or terrorist activities generally restricts travel to and from the affected areas, making it more difficult
in general to manage the company’s international operations.
The Company’s business could be harmed by the occurrence of natural disasters or pandemic diseases.
The occurrence of a natural disaster, such as an earthquake, tsunami, fire, flood or hurricane, or the outbreak of a pandemic
disease, could significantly adversely affect the Company’s business. A natural disaster or a pandemic disease could
significantly adversely affect both the demand for the Company’s products as well as the supply of the components used to
make the Company’s products. Demand for golf products also could be negatively affected as consumers in the affected regions
restrict their recreational activities and as tourism to those areas declines. If the Company’s suppliers experienced a significant
disruption in their business as a result of a natural disaster or pandemic disease, the Company’s ability to obtain the necessary
components to make its products could be significantly adversely affected. In addition, the occurrence of a natural disaster or
the outbreak of a pandemic disease generally restricts travel to and from the affected areas, making it more difficult in general
to manage the Company’s international operations.
The Company’s business and operating results are subject to seasonal fluctuations, which could result in fluctuations in
its operating results and stock price.
The Company’s business is subject to seasonal fluctuations. The Company’s first quarter-sales generally represent the
Company’s sell-in to the golf retail channel of its golf club products for the new golf season. The Company’s second and third-
quarter sales generally represent reorder business for golf clubs. Sales of golf clubs during the second and third quarters are
significantly affected not only by the sell-through of the Company’s products that were sold into the channel during the first
quarter but also by the sell-through of products by the Company’s competitors. Retailers are sometimes reluctant to reorder
the Company’s products in significant quantities when they already have excess inventory of products of the Company or its
competitors. The Company’s sales of golf balls are generally associated with the level of rounds played in the areas where
the Company’s products are sold. Therefore, golf ball sales tend to be greater in the second and third quarters, when the weather
is good in most of the Company’s key markets and the number of rounds played are up. Golf ball sales are also stimulated by
product introductions as the retail channel takes on initial supplies. Like those of golf clubs, reorders of golf balls depend on
the rate of sell-through. The Company’s sales during the fourth quarter are generally significantly less than those of the other
quarters because in many of the Company’s key regions fewer people are playing golf during that time of year due to cold