Callaway 2003 Annual Report Download - page 30

CALLAWAY GOLF COMPANY 27
from management’s expectations or estimates of the
Company’s future performance or financial condition. These
factors, among others, should be considered in assessing the
Company’s future prospects and prior to making an investment
decision with respect to the Company’s stock.
Top-Flite Golf Company Asset Acquisition
In September 2003, the Company acquired through a court-
approved sale substantially all of the golf-related assets of
the TFGC Estate Inc. (f/k/a The Top-Flite Golf Company,
f/k/a Spalding Sports Worldwide Inc.), which included golf
ball manufacturing facilities, the Top-Flite, Strata and Ben
Hogan brands, and all golf-related patents and trademarks.
The Company faces certain challenges associated with this
acquisition, including (i) reinvigorating the Top-Flite brand
in the marketplace, (ii) the assimilation of the Top-Flite and
Callaway Golf brands in the marketplace without negatively
affecting the sales of either brand, (iii) the integration and
consolidation of the Callaway Golf and Top-Flite golf ball
manufacturing operations and the integration of the inter-
national Top-Flite sales and distribution operations with the
Company’s existing foreign subsidiaries, (iv) operating all or
almost all of the golf ball manufacturing operations in a
mature facility that is located in a harsh climate across the
country from the Company’s principal executive offices and
that has a unionized workforce, and (v) the employee and
other issues inherent in any consolidation. Furthermore, the
integration and consolidation of the acquired assets will
require a considerable amount of time and attention of senior
management and others, which could have an adverse effect
upon the Company’s club business.
In addition, in connection with the integration and consoli-
dation of the golf ball manufacturing operations, the
Company has incurred and expects to incur additional,
significant charges to earnings. During the fourth quarter of
2003, the Company recorded a charge for $24.1 million
related to the disposal of certain golf ball manufacturing
equipment. On January 22, 2004, the Company announced
that in 2004 it expects to incur additional charges of
approximately $35.0 million as it continues to consolidate
its operations.
Finally, the Company has spent a considerable amount of
cash to acquire The Top-Flite Golf Company assets and there
is no assurance that the Company will realize a satisfactory
return on its investment.
Terrorist Activity and Armed Conflict
Terrorist activities and armed conflicts in recent years (such
as the attacks on the World Trade Center and the Pentagon,
the incidents of Anthrax poisoning and the military actions
in the Middle East, including the War in Iraq), as well as the
threat of future conflict, have had a significant adverse effect
upon the Company’s business. Any such additional events
would likely have an adverse effect upon the world economy
and would likely adversely affect the level of demand for the
Company’s products as consumers’ attention and interest are
diverted from golf and become focused on these events and
the economic, political, and public safety issues and concerns
associated with such events. Also, such events could adversely
affect the Company’s ability to manage its supply and delivery
logistics. If such events caused a significant disruption in
domestic or international air, ground or sea shipments, the
Company’s ability to obtain the materials necessary to pro-
duce and sell its products and to deliver customer orders also
would be materially adversely affected. Furthermore, such
events have negatively impacted tourism. If this negative
impact upon tourism continues, the Company’s sales to
retailers at resorts and other vacation destinations would be
materially adversely affected.
Pandemic Diseases
The outbreak of a pandemic disease, such as Severe Acute
Respiratory Syndrome (“SARS”) or the Avian Flu, could
significantly adversely affect the Company’s business. 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 could be negatively affected as
consumers in the affected regions restrict their recreational
activ
ities and as tourism to those areas declines. Moreover,
the Company relies on many companies in Asia for its
components. If the Company’s suppliers experienced a