Callaway 2011 Annual Report Download - page 27

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inventory. Should the Company not successfully manage all of the risks associated with this rapidly moving
marketplace, the Company’s results of operations, financial condition and cash flows could be significantly
adversely affected.
A reduction in the number of rounds of golf played or in the number of golf participants could adversely affect
the Company’s sales.
The Company generates substantially all of its revenues from the sale of golf-related products, including
golf clubs, golf balls and golf accessories. The demand for golf-related products in general, and golf balls in
particular, is directly related to the number of golf participants and the number of rounds of golf being played by
these participants. If golf participation or the number of rounds of golf played decreases, sales of the Company’s
products may be adversely affected. In the future, the overall dollar volume of the market for golf-related
products may not grow or may decline.
In addition, the demand for golf products is also directly related to the popularity of magazines, cable
channels and other media dedicated to golf, television coverage of golf tournaments and attendance at golf
events. The Company depends on the exposure of its products through advertising and the media or at golf
tournaments and events. Any significant reduction in television coverage of, or attendance at, golf tournaments
and events or any significant reduction in the popularity of golf magazines or golf channels, could reduce the
visibility of the Company’s brand and could adversely affect the Company’s sales.
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. The Company also believes that overall dollar volume of the
worldwide market for golf equipment sales has declined over the past three years. In the future, the overall dollar
volume of worldwide sales of golf clubs or golf balls may not grow or may continue to 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. 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
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