Callaway 2014 Annual Report Download - page 27

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performance of their predecessors in one or both of those areas. Fourth, the relatively short window of opportunity for launching
and selling new products requires great precision in forecasting demand and assuring that supplies are ready and delivered
during the critical selling periods. Finally, the rapid changeover in products creates a need to monitor and manage the closeout
of older products both at retail and in the Company’s own inventory. Should the Company not successfully manage the frequent
introduction of new products that satisfy consumer demand, the Company’s results of operations, financial condition and cash
flows could be significantly adversely affected.
A reduction in the number of rounds of golf played or in the number of golf participants could adversely affect the Company’s
sales.
The Company generates substantially all of its revenues from the sale of golf-related products, including golf clubs, golf
balls and golf accessories. The demand for golf-related products in general, and golf balls in particular, is directly related to
the number of golf participants and the number of rounds of golf being played by these participants, both of which have
declined in recent years. If golf participation or the number of rounds of golf played continues to decrease, sales of the
Company’s products may be adversely affected. In the future, the overall dollar volume of the market for golf-related products
may not grow or may decline.
In addition, the demand for golf products is also directly related to the popularity of magazines, cable channels and other
media dedicated to golf, television coverage of golf tournaments and attendance at golf events. The Company depends on the
exposure of its products through advertising and the media or at golf tournaments and events. Any significant reduction in
television coverage of, or attendance at, golf tournaments and events or any significant reduction in the popularity of golf
magazines or golf television channels, could reduce the visibility of the Company’s brand and could adversely affect the
Company’s sales.
The Company may have limited opportunities for future growth in sales of golf clubs and golf balls.
In order for the Company to significantly grow its sales of golf clubs or golf balls, the Company must either increase
its share of the market for golf clubs or golf balls, or the market for golf clubs or golf balls must grow. The Company already
has a significant share of worldwide sales of golf clubs and golf balls and the golf industry is very competitive. As such,
gaining incremental market share quickly or at all is difficult. Therefore, opportunities for additional market share may be
limited given the challenging competitive nature of the golf industry. The Company also believes that the worldwide 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. Forecasting the
demand for the Company's products is very difficult given the amount of specification involved. For example, the Company
must forecast not only how many drivers it will sell, but also (1) the quantity of each driver model, (2) the quantity of the
different lofts in each driver model, and (3) for each driver model and loft, the number of left handed and right handed versions.
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