Callaway 2012 Annual Report Download - page 30

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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 effect 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, tsunami, 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 the components used to make the Company’s products. Demand for golf products also could be
negatively affected as consumers in the affected regions restrict their recreational activities and as tourism to
those areas declines. If the Company’s suppliers experienced a significant disruption in their business as a result
of a natural disaster or pandemic disease, the Company’s ability to obtain the necessary components to make its
products could be significantly adversely affected. In addition, the occurrence of a natural disaster or the
outbreak of a pandemic disease generally restricts the travel to and from the affected areas, making it more
difficult in general to manage the Company’s international operations.
The Company’s business and operating results are subject to seasonal fluctuations, which could result in
fluctuations in its operating results and stock price.
The Company’s business is subject to seasonal fluctuations. The Company’s first quarter sales generally
represent the Company’s sell-in to the golf retail channel of its golf club products for the new golf season. The
Company’s second and third quarter sales generally represent reorder business for golf clubs. Sales of golf clubs
during the second and third quarters are significantly affected not only by the sell-through of the Company’s
products that were sold into the channel during the first quarter but also by the sell-through of products by the
Company’s competitors. Retailers are sometimes reluctant to reorder the Company’s products in significant
quantities when they already have excess inventory of products of the Company or its competitors. The
Company’s sales of golf balls are generally associated with the level of rounds played in the areas where the
Company’s products are sold. Therefore, golf ball sales tend to be greater in the second and third quarters, when
the weather is good in most of the Company’s key markets and rounds played are up. Golf ball sales are also
stimulated by product introductions as the retail channel takes on initial supplies. Like those of golf clubs,
reorders of golf balls depend on the rate of sell-through. The Company’s sales during the fourth quarter are
generally significantly less than those of the other quarters because in many of the Company’s principal markets
fewer people are playing golf during that time of year due to cold weather. Furthermore, the Company generally
announces its new product line in the fourth quarter to allow retailers to plan for the new golf season. Such early
announcements of new products could cause golfers, and therefore the Company’s customers, to defer
purchasing additional golf equipment until the Company’s new products are available. Such deferments could
have a material adverse effect upon sales of the Company’s current products or result in closeout sales at reduced
prices.
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