Callaway 2002 Annual Report Download - page 28

CALLAWAY GOLF COMPANY 25
of the contract, the Company no longer records future valuation
adjustments for changes in electricity rates. The Company
continues to reflect on its balance sheet the derivative valuation
account of $19.9 million, subject to periodic review, in accor-
dance with SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.”
The Company believes the Enron Contract has been terminated,
and as of March 14, 2003, EESI has not asserted any claim
against the Company. There can be no assurance, however, that
EESI or another party will not assert a future claim against the
Company or that a bankruptcy court or arbitrator will not
ultimately nullify the Company’s termination of the Enron Contract.
No provision has been made for contingencies or obligations, if
any, under the Enron Contract beyond November 30, 2001.
Certa in Fa c tors Affect in g Ca llaw ay Go lf Co m p a n y
The financial statements contained in this report and the related
discussion describe and analyze the Company’s financial
performance and condition for the periods indicated. For the
most part, this information is historical. The Company’s prior
results are not necessarily indicative of the Company’s future
performance or financial condition. The Company therefore has
included the following discussion of certain factors which could
affect the Company’s future performance or financial condition.
These factors could cause the Company’s future performance or
financial condition to differ materially from its prior performance
or financial condition or from management’s expectations or
estimates of the Company’s future performance or financial
condition. These factors, among others, should be considered in
assessing the Company’s future prospects and prior to making
an investment decision with respect to the Company’s stock.
Terrorist Activity and Armed Conflict
Terrorist activities and armed conflicts (such as the attacks on
the World Trade Center and the Pentagon, the incidents of
Anthrax poisoning and the military actions in the Middle East),
as well as the threat of future conflict (such as the potential
armed conflict with Iraq), have had a significant adverse effect
upon the Company’s business. Any such additional events
would likely have an adverse effect upon an already weakened
world economy (discussed below) and would likely adversely
affect the level of demand for the Company’s products as
consumers’ attention and interest are diverted from golf and
become focused on these events and the economic, political,
and public safety issues and concerns associated with such
events. Also, such events could adversely affect the Company’s
ability to manage its supply and delivery logistics. If such events
caused a significant disruption in domestic or international air,
ground or sea shipments, the Company’s ability to obtain the
materials necessary to produce and sell its products and to deliver
customer orders also would be materially adversely affected.
Furthermore, such events have negatively impacted tourism. If
this negative impact upon tourism continues, the Company’s
sales to retailers at resorts and other vacation destinations
would be materially adversely affected.
Adverse Global Economic Conditions
The Company sells golf clubs, golf balls and golf accessories.
These products are recreational in nature and are therefore
discretionary purchases for consumers. Consumers are generally
more willing to make discretionary purchases of golf products
during favorable economic conditions and when consumers are
feeling confident and prosperous. Adverse economic conditions
in the United States or in the Company’s international markets
(which represent almost half of the Company’s total sales), or a
decrease in prosperity among consumers, or even a decrease in
consumer confidence as a result of anticipated adverse economic
conditions, could cause consumers to forgo or to postpone
purchasing new golf products. Such forgone or postponed pur-
chases could have a material adverse effect upon the Company.
The Company believes that the current economic conditions in
many of the countries where the Company conducts business
are unfavorable to the golf industry. The economic conditions in
many of the Company’s key markets around the world are
currently viewed by many as uncertain or troubled. Many
people in the United States have lost a substantial amount of
wealth in the stock market, including some who have lost all or
substantially all of their retirement savings. Furthermore, in the
United States, there have been announcements by companies
of significant reductions in force, and others are possible, and
consumers are less likely to purchase new golf equipment when
they are unemployed. The Company believes that these adverse
conditions have adversely affected the Company’s sales and
will continue to do so until such conditions improve.