Callaway 2014 Annual Report Download - page 83

F-15
Segment Information
The Company’s operating segments are organized on the basis of products and consist of golf clubs and golf balls. The
golf clubs segment consists primarily of Callaway Golf woods, hybrids, irons, wedges and putters as well as Odyssey putters,
pre-owned clubs, golf-related accessories and royalties from licensing of the Company’s trademarks and service marks. The
golf balls segment consists of Callaway Golf golf balls that are designed, manufactured and sold by the Company. The Company
also discloses information about geographic areas. This information is presented in Note 19 “Segment Information.”
Concentration of Risk
The Company operates in the golf equipment industry and has a concentrated customer base, which is primarily comprised
of golf equipment retailers (including pro shops at golf courses and off-course retailers), sporting goods retailers and mass
merchants and foreign distributors. On a consolidated basis, the Company's top five customers accounted for no more than
25% of the Company's consolidated revenues in 2014, 23% in 2013 and 25% in 2012. A loss of one or more of these customers
could have a significant effect on the Company's net sales. With respect to the Company's trade receivables, the Company
performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from these
customers. The Company maintains reserves for estimated credit losses, which it considers adequate to cover any such losses.
At December 31, 2014, the Company had one customer with an outstanding balance greater than 9% of the Company's
outstanding consolidated accounts receivable. At December 31, 2013, no single customer represented over 9% of the
Company’s outstanding accounts receivable balance. Managing customer-related credit risk is more difficult in regions outside
of the United States. In 2014 and 2013, approximately 52% of the Company’s net sales were made in regions outside of the
United States, and approximately 53% in 2012. Prolonged unfavorable economic conditions in the Company’s international
markets could significantly increase the Company’s credit risk with respect to its outstanding accounts receivable.
The Company is dependent on a limited number of suppliers for its clubheads and shafts, some of which are single
sourced. Furthermore, some of the Company’s products require specially developed manufacturing techniques and processes
which make it difficult to identify and utilize alternative suppliers quickly. In addition, many of the Company’s suppliers are
not well capitalized and prolonged unfavorable economic conditions could increase the risk that they will go out of business.
If current suppliers are unable to deliver clubheads, shafts or other components, or if the Company is required to transition to
other suppliers, the Company could experience significant production delays or disruption to its business. The Company also
depends on a single or a limited number of suppliers for the materials it uses to make its golf balls. Many of these materials
are customized for the Company. Any delay or interruption in such supplies could have a material adverse impact upon the
Company’s golf ball business. If the Company were to experience any such delays or interruptions, the Company may not be
able to find adequate alternative suppliers at a reasonable cost or without significant disruption to its business.
The Company’s financial instruments that are subject to concentrations of credit risk consist primarily of cash equivalents,
trade receivables and foreign currency exchange contracts.
The Company historically invests its excess cash in money market accounts and short-term U.S. government securities
and has established guidelines relative to diversification and maturities in an effort to maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.
From time to time, the Company enters into foreign currency forward contracts and put or call options for the purpose
of hedging foreign exchange rate exposures on existing or anticipated transactions. In the event of a failure to honor one of
these contracts by one of the banks with which the Company has contracted, management believes any loss would be limited
to the exchange rate differential from the time the contract was made until the time it was settled.
Note 3. Restructuring Initiatives
Global Operations Strategy
In 2010, the Company began the implementation of its Global Operations Strategy Initiatives (“GOS Initiatives”), which
targeted the restructuring and relocation of the Company’s manufacturing and distribution operations. This restructuring,
which was designed to add speed and flexibility to customer service demands, optimize efficiencies and facilitate long-term
gross margin improvements, included the reorganization of the Company’s manufacturing and distribution centers located in
Carlsbad, California, Toronto, Canada, and Chicopee, Massachusetts, the creation of third-party logistics sites in Dallas, Texas
and Toronto, Canada, as well as the establishment of a new production facility in Monterrey, Mexico. This restructuring was