Callaway 1997 Annual Report Download - page 11

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The Company has established ERC In t e r n a t i o n a l
Company (“ERC”), a wholly-owned Japanese corporation,
for the purpose of distributing Odyssey
®
products immedi-
ately, Callaway Golf balls when ready and Callaway Golf
clubs beginning January 1, 2000. There will be significant
costs and capital expenditures invested in ERC before there
will be sales sufficient to support such product costs.
Fu rt h e r m o re, there are significant risks associated with the
C o m p a n y’s intention to effectuate distribution in Ja p a n
t h rough ERC, and it is possible that doing so will have a mate-
rial adverse effect on the Company’s operations and financial
p e r f o r m a n c e .
Golf Ball De ve l o p m e n t
In June 1996, the Company formed Callaway Golf Ball
Company, a wholly-owned subsidiary of the Company, for
the purpose of designing, manufacturing and selling golf
balls. The Company has previously licensed the manufacture
and distribution of a golf ball product in Japan and Korea.
The Company also distributed a golf ball under the trade-
mark “Bobby Jones.” These golf ball ventures were not com-
mercially successful.
The Company has determined that Callaway Golf Ball
Company will enter the golf ball business by developing a
new product in a new plant to be constructed just for this
purpose. The successful implementation of the Company’s
strategy could be adversely affected by various risks, includ-
ing, among others, delays in product development, constru c-
tion delays and unanticipated costs. T h e re can be no
assurance if and when a successful golf ball product will be
d e veloped or that the Company’s investments will ultimately
be realized.
The Company’s golf ball business is in the early stages of
development. It is expected, however, that it will have a neg-
ative impact on the Company’s future cash flows and re s u l t s
of operations for several years. The Company believe sthat
many of the same factors which affect the golf equipment
industry, including growth rate in the golf equipment indus-
t r y, intellectual pro p e rty rights of others, seasonality and new
p roduct introductions, also apply to the golf ball business. In
addition, the golf ball business is highly competitive with a
number of well-established and well-financed c o m p e t i t o r s .
These competitors have established market sharein the golf
ball business which will need to be penetrated in order for the
Company’s golf ball business to be successful.
Year 2000 Compliance
Historically, certain computer programs have been written
using two digits rather than four to define the applicable ye a r,
which could result in the computer recognizing a date u s i n g
“00” as the year 1900 rather than the year 2000. This, in turn,
could result in major system failures or miscalculations, and
is generally referred to as the “Year 2000” problem.
In October 1997, the Company implemented a new
computer system which runs most of the Company’s principal
data processing and financial re p o rting software applications.
The application software used on this new system is Year 2000
compliant. The information systems of certain of the
C o m p a n y’s subsidiaries, howe v e r, have not been conve r ted to
the new system, but the Company is in the process of imple-
menting such conversion. Pursuant to the Company’sYear
2000 Plan, the Company is currently evaluating its comput-
erized production equipment to assure that the transition to
the Year 2000 will not disrupt the Company’s manufacturing
capabilities. The Company is currently assessing the extent of
the Year 2000 impact on its suppliers,distributors, customers
and other vendors. Presently, the Company does not believe
that Year 2000 compliance will result in additional material
investments by the Company, nor does the Company antici-
pate that the Year 2000 problem will have material adverse
effects on the business operations or financial performance of
the Company.There can be no assurance, however, that the
Year 2000 problem will not adversely affect the Company
and its business.
Management In f o rmation Sy s t e m s
As noted above, in October 1997, the Company conve rted to
a new integrated computer system which runs substantially all
of the Company’s principal data processing and financial
re p o rting software applications. As the Company enters its
traditional busy selling season in the second and third quart e r s ,
the demands on the Company’s information systems will
i n c rease substantially. Any significant disruptions or delays in
the Company’s information systems during this period could
n e g a t i vely impact the Company’s ability to process sales ord e r s
and compile other management information, which in turn
could have material adverse effects on the Company’s sales and
results of operations.