Callaway 2012 Annual Report Download - page 29

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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. If there is any significant
interruption in service by such providers or at 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 materially and 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 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 club and golf ball business has a concentrated customer base. The loss of one or more of
the Company’s top customers could have a significant effect on the Company’s golf club and golf ball sales.
On a consolidated basis, no one customer that distributes golf clubs or golf balls in the United States
accounted for more than 7% of the Company’s consolidated revenues in 2012, compared to 6% in both 2011 and
2010. On a segment basis, in 2012, the top five golf club and golf ball customers accounted for approximately
14% and 17% of the Company’s total consolidated golf club and golf ball sales, respectively. A loss of one or
more of these customers could have a significant adverse effect on the Company’s golf club and golf ball sales.
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