Callaway 2010 Annual Report Download - page 29

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alternative suppliers or to receive or ship goods through alternate sites in order to deliver its products or
components in a timely and cost-efficient manner. As a result, the Company could experience manufacturing
delays, increased manufacturing and shipping costs, and lost sales as a result of missed delivery deadlines and
product demand cycles. Any significant interruption in UPS services, air carrier services or ship services could
have a material adverse effect upon the Company’s business. Furthermore, if the cost of delivery or shipping
services were to increase significantly and the additional costs could not be covered by product pricing, the
Company’s operating results could be significantly adversely affected.
The Company faces intense competition in each of its markets and if it is unable to maintain a competitive
advantage, loss of market share, revenue, or profitability may result.
Golf Clubs. The golf club business is highly competitive, and is served by a number of well-established and
well-financed companies with recognized brand names. New product introductions, price reductions,
consignment sales, extended payment terms, “closeouts,” including closeouts of products that were recently
commercially successful, and significant tour and advertising spending by competitors continue to generate
intense market competition. Furthermore, continued downward pressure on pricing in the market for new clubs
could have a significant adverse effect on the Company’s pre-owned club business as the gap narrows between
the cost of a new club and a pre-owned club. Successful marketing activities, discounted pricing, consignment
sales, extended payment terms or new product introductions by competitors could negatively impact the
Company’s future sales.
Golf Balls. The golf ball business is also highly competitive. There are a number of well-established and
well-financed competitors, including one competitor with an estimated U.S. market share of approximately 50%.
As the Company’s competitors continue to incur significant costs in the areas of advertising, tour and other
promotional support, the Company will continue to incur significant expenses in both tour and advertising
support and product development. 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 and lifestyle
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 ball business has a concentrated customer base. The loss of one or more of the
Company’s top customers could have a significant negative impact on this business.
On a consolidated basis, no one customer that distributes golf clubs or golf balls in the United States
accounted for more than 6% of the Company’s consolidated revenues in 2010 and 2009 and 5% in 2008. On a
segment basis, the golf ball customer base is much more concentrated than the golf club customer base. In 2010,
the top five golf ball customers accounted for approximately 22% of the Company’s total consolidated golf ball
sales. A loss of one or more of these customers could have a significant adverse effect upon the Company’s 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 interest 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 produce its products, to manufacture its products, and to
deliver customer orders would be harmed, which would have a significant adverse affect on the Company’s
results of operations, financial condition and cash flows. Furthermore, such events can negatively impact
tourism, which could adversely affect the Company’s sales to retailers at resorts and other vacation destinations.
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