Callaway 2013 Annual Report Download - page 27

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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 over 50%. The Company’s
competitors continue to incur significant costs in the areas of advertising, tour and other promotional support. The
Company believes that to be competitive, the Company also need to continue to incur significant expenses in tour,
advertising and promotional support. 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 both 2013 and 2012, and 6% in 2011. The Company's top five
customers accounted for more than 17% of the Company's consolidated revenues in 2013, and 14% in both 2012 and
2011. On a segment basis, in 2013, the top five golf club and golf ball customers accounted for approximately 17% and
27% 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.
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