Callaway 2011 Annual Report Download - page 28

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 and golf ball manufacturing
and assembly facilities could have a material adverse effect on the Company’s sales, profitability and results
of operations.
A significant amount of the Company’s golf club products are assembled at the Company’s facilities in
Monterey, Mexico and a moderate amount of the Company’s golf ball products are manufactured at its facilities
in Chicopee, Massachusetts. Both golf club and golf balls are shipped from third-party logistics facilities in
Dallas, Texas and Toronto, Canada. A significant disruption at any of the Company’s golf club or golf ball
manufacturing facilities or at the third-party logistics sites could adversely affect the Company’s sales,
profitability and results of operations.
If the Company is unable to obtain at reasonable costs materials or electricity necessary for the manufacture
of its products, its business could be adversely affected.
The Company’s size has made it a large consumer of certain materials, including steel, titanium alloys,
carbon fiber and rubber. The Company does not produce these materials itself, and must rely on its ability to
obtain adequate supplies in the world marketplace in competition with other users of such materials. In the
future, the Company may not be able to obtain its requirements for such materials at a reasonable price or at all.
An interruption in the supply of the materials used by the Company or a significant change in costs could have a
material adverse effect on the Company’s business.
The Company’s golf club and golf ball manufacturing facilities use, among other resources, significant
quantities of electricity to operate. An interruption in the supply of electricity or a significant increase in the cost
of electricity could have a significant adverse effect upon the Company’s results of operations.
A disruption in the service or a significant increase in the cost of the Company’s primary delivery and
shipping services for its products and component parts could have a material adverse effect on the Company’s
business.
The Company uses United Parcel Service (“UPS”) for substantially all ground shipments of products to its
U.S. customers. The Company uses air carriers and ocean shipping services for most of its international
shipments of products. Furthermore, many of the components the Company uses to build its golf clubs, including
clubheads and shafts, are shipped to the Company via air carrier and ship services. The Company’s inbound and
outbound shipments are particularly dependent upon air carrier facilities at Los Angeles International Airport and
ship service facilities at the Port of Los Angeles (Long Beach). If there is any significant interruption in service
by such providers or at other significant airports or shipping ports, the Company may be unable to engage
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.
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