Callaway 2000 Annual Report Download - page 25

Callaway Golf Company | 25
The Company will need to penetrate the market share held by
existing competitors while competing with the other new entrants
in order for its golf ball business to be successful. There can be no
assurance that the Company’s golf balls will obtain the market
acceptance necessary to be commercially successful.
Market Acceptance of Products
A golf manufacturer’s ability to compete is in part dependent upon
its ability to satisfy the various subjective requirements of golfers,
including a golf club’s and golf ball’s look and “feel,” and the level
of acceptance that a golf club and ball has among professional and
recreational golfers. The subjective preferences of golf club and
ball purchasers may be subject to rapid and unanticipated changes.
There can be no assurance as to how long the Company’s golf clubs
and balls will maintain market acceptance and therefore no assur-
ance that the demand for the Company’s products will permit the
Company to experience growth in sales, or maintain historical
levels of sales, in the future.
New Product Introduction
The Company believes that the introduction of new, innovative
golf clubs and golf balls is important to its future success. The
Company faces certain risks associated with such a strategy. For
example, in the golf industry, new models and basic design
changes in golf equipment are frequently met with consumer
rejection. In addition, prior successful designs may be rendered
obsolete within a relatively short period of time as new products
are introduced into the marketplace. Further, any new products
that retail at a lower price than prior products may negatively
impact the Company’s revenues unless unit sales increase.
The Company’s new products have tended to incorporate sig-
nificant innovations in design and manufacture, which have often
resulted in higher prices for the Company’s products relative to
other products in the marketplace. For example, the Company’s
Rule 35® golf balls are premium golf balls and there are many lower
priced non-premium golf balls sold by others. There can be no
assurance that a significant percentage of the public will always be
willing to pay such premium prices for golf equipment or that the
Company will be able to continue to design and manufacture pre-
mium products that achieve market acceptance in the future.
The rapid introduction of new golf club or golf ball products
by the Company could result in close-outs of existing invento-
ries at both the wholesale and retail levels. Such close-outs can
result in reduced margins on the sale of older products, as well
as reduced sales of new products, given the availability of older
products at lower prices. The Company experienced some of
these effects in 1999 with respect to golf clubs and could expe-
rience similar effects in future years as the Company from time
to time introduces new golf club or golf ball products or mis-
judges demand.
It previously was the Company’s practice to announce its new
product line at the beginning of each calendar year. The Company
recently departed from that practice and now announces its new
product line in the fourth quarter to allow retailers to plan better.
Such early announcements of new products could cause golfers,
and therefore the Company’s customers, to defer purchasing addi-
tional golf equipment until the Company’s new products are avail-
able. Such deferments could have a material adverse effect upon
sales of the Company’s current products and/or result in close-out
sales at reduced prices.
Conformance with Rules of Golf
New golf club and golf ball products generally seek to satisfy the
standards established by the United States Golf Association
(“USGA”) and the Royal and Ancient Golf Club of St. Andrews
(“R&A”) because these standards are generally followed by
golfers within their respective jurisdictions. The USGA rules are
generally followed in the United States, Canada and Mexico and
the R&A rules are generally followed in most other countries
throughout the world.
Currently, the Rules of Golf as published by the R&A and the
USGA are virtually the same except with respect to the regulation
of “driving clubs.” In 1998, the USGA adopted a so-called “spring-
like effect test” that limits the coefficient of restitution (“COR”)
of drivers. The R&A has announced that it does not believe that
such a limitation is needed or in the best interests of the game of
golf, and has not adopted such a test or other performance limi-
tation on drivers.
Some countries, such as Japan and Canada, have local golf
associations that exert some control over the game of golf within
their jurisdictions. The Royal Canadian Golf Association (“RCGA”)
has announced that it will generally follow the USGA with respect
to equipment rules. So far, no other local organization within the
R&A’s general jurisdiction has deviated from the R&A’s position
with respect to equipment rules.
Currently, all of the Company’s products are believed to be
“conforming” under the Rules of Golf as published by the R&A. In
addition, all of the Company’s products with the exception of the
Company’s ERC IITM Forged Titanium Driver (together with its pre-
decessor, the ERCTM Forged Titanium Driver, the “ERCTM Drivers”), are