Callaway 2011 Annual Report Download - page 29

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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 over 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 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 2011, 2010 and 2009. On a segment
basis, the golf ball customer base is much more concentrated than the golf club customer base. In 2011, 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 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. Such events can negatively impact tourism, which could adversely affect the
Company’s sales to retailers at resorts and other vacation destinations. In addition, the occurrence of political
instability and/or terrorist activities generally restricts travel to and from the affected areas, making it more
difficult in general to manage the company’s international operations.
The Company’s business could be harmed by the occurrence of natural disasters or pandemic diseases.
The occurrence of a natural disaster, such as an earthquake, fire, flood or hurricane, or the outbreak of a
pandemic disease, could significantly adversely affect the Company’s business. A natural disaster or a pandemic
disease could significantly adversely affect both the demand for the Company’s products as well as the supply of
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