Callaway 2007 Annual Report Download - page 23

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The Company may have limited opportunities for future growth in sales of golf clubs and golf balls.
In order for the Company to significantly grow its sales of golf clubs or golf balls, the Company must either
increase its share of the market for golf clubs or balls, or the market for golf clubs or balls must grow. The
Company already has a significant share of worldwide sales of golf clubs and golf balls. Therefore, opportunities
for additional market share may be limited. Furthermore, the Company does not believe there has been any
material increase in the number of golfers worldwide in over five years. The Company also believes that overall
dollar volume of the worldwide market for golf equipment sales has not experienced substantial growth in the
past several years. In the future, the overall dollar volume of worldwide sales of golf clubs or golf balls may not
grow or may decline.
If the Company inaccurately forecasts demand for its products, it may manufacture either insufficient or
excess quantities, which, in either case, could adversely affect its financial performance.
The Company plans its manufacturing capacity based upon the forecasted demand for its products. The
nature of the Company’s business makes it difficult to quickly adjust its manufacturing capacity if actual demand
for its products exceeds or is less than forecasted demand. If actual demand for its products exceeds the
forecasted demand, the Company may not be able to produce sufficient quantities of new products in time to
fulfill actual demand, which could limit the Company’s sales and adversely affect its financial performance. On
the other hand, if actual demand is less than the forecasted demand for its products, the Company could produce
excess quantities, resulting in excess inventories and related obsolescence charges that could adversely affect the
Company’s financial performance.
The Company depends on single-source or a limited number of suppliers for some of its products, and the loss
of any of these suppliers could harm its business.
The Company is dependent on a limited number of suppliers for its clubheads and shafts, some of which are
single-sourced. In addition, some of the Company’s products require specifically developed manufacturing
techniques and processes which make it difficult to identify and utilize alternative suppliers quickly. 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 did 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.
A significant disruption in the operations of the Company’s golf club assembly facilities in Carlsbad,
California or its golf ball manufacturing facilities in Chicopee, Massachusetts could have a material adverse
effect on the Company’s sales, profitability and results of operations.
A substantial majority of the Company’s golf club products are assembled at and shipped from its facilities
in Carlsbad, California. A large majority of the Company’s golf ball products are manufactured at and shipped
from its facilities in Chicopee, Massachusetts. Any natural disaster or other significant disruption to the operation
of these facilities could substantially disrupt the Company’s global supply chain coordination for the relevant
golf club or golf ball business segment, including damage to inventory at the respective facilities. In addition, the
Company could incur significantly higher costs and longer lead times associated with fulfilling orders and
distributing product. As a result, a significant disruption at either of the Carlsbad, California or Chicopee,
Massachusetts, facilities could adversely affect the Company’s sales, profitability and results of operations.
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