Callaway 2013 Annual Report Download - page 26

Download and view the complete annual report

Please find page 26 of the 2013 Callaway annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

12
golf market has not grown significantly in recent years. In the future, the overall dollar volume of worldwide sales of golf
clubs or golf balls may not grow or may 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 adjust quickly 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 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 disruption at any of the Company’s golf club or golf ball manufacturing facilities or distribution centers
in the U.S. and in regions outside the U.S. could materially and adversely affect the Company’s sales, profitability and
results of operations.
New regulations related to “conflict minerals” will require the Company to incur additional expenses and could limit
the supply and increase the cost of certain metals used in manufacturing the Company’s products.
On August 22, 2012, the Commission adopted rules requiring disclosure related to sourcing of specified minerals,
known as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted
to be manufactured by public companies. The new rules, which are effective for calendar 2013 and require a report to be
filed by May 31, 2014, require companies to, under specified circumstances, undertake due diligence, disclose and report
whether or not such minerals originated from the Democratic Republic of Congo or an adjoining country. The Company’s
products may contain some of the specified minerals. As a result, the Company may incur additional expenses in connection
with complying with the new rules, including with respect to any due diligence that is required under the new rules. In
addition, the implementation of the new rules could adversely affect the sourcing, supply and pricing of materials used
in the Company’s products. There may only be a limited number of suppliers offering “conflict free” conflict minerals,
and the Company cannot be certain that it will be able to obtain necessary “conflict free” conflict minerals from such
suppliers in sufficient quantities or at competitive prices. Because the Company’s supply chain is complex, the Company
may also not be able to sufficiently verify the origins of the relevant minerals used in theCompany’s products through
the due diligence procedures that the Company implements, which may harm the Company’s reputation.