Callaway 2004 Annual Report Download - page 45

In addition, foreign currency Öuctuations can also aÅect the prices at which products are sold in the
Company's international markets. The Company therefore adjusts its pricing based in part upon Öuctuations in
foreign currency exchange rates. SigniÑcant unanticipated changes in foreign currency exchange rates make it
more diÇcult for the Company to manage pricing in its international markets. If the Company is unable to
adjust its pricing in a timely manner to counteract the eÅects of foreign currency Öuctuations, the Company's
pricing may not be competitive in the marketplace and the Company's Ñnancial results in its international
markets could be adversely aÅected.
Growth Opportunities
In order for the Company to signiÑcantly grow its sales of golf clubs or golf balls, the Company must
either increase its share of the market for golf clubs or balls, or the market for golf clubs or balls must grow.
The Company already has a signiÑcant share of worldwide golf club sales and the Company's golf ball
products achieved the number two retail market share in 2004. Therefore, opportunities for additional market
share may be limited. The Company does not believe there has been any material increase in the number of
golfers worldwide in over four years. Furthermore, the Company believes that overall worldwide golf club sales
have generally not experienced substantial growth in the past several years. There is no assurance that the
overall dollar volume of worldwide golf club or ball sales will grow, or that it will not decline, in the future.
Seasonality and Adverse Weather Conditions
In addition to the eÅects of product cycles described above, the Company's business is also subject to the
eÅects of seasonal Öuctuations. The Company's Ñrst quarter sales generally represent the Company's sell-in to
the golf retail channel of its golf club products for the new golf season. Orders for many of these sales are
received during the fourth quarter of the prior year. The Company's second and third quarter sales generally
represent re-order business for golf clubs. Sales of golf clubs during the second and third quarters are
signiÑcantly aÅected not only by the sell-through of the Company's products that were sold into the channel
during the Ñrst quarter but also by the sell-through of the products of the Company's competitors. Retailers
are sometimes reluctant to re-order the Company's products in signiÑcant quantity when they already have
excess inventory of the Company's or its competitors' products. The Company's sales of golf balls are generally
associated with the level of rounds played in the areas where the Company's products are sold. Therefore, golf
ball sales tend to be greater in the second and third quarters, when the weather is good in most of the
Company's key markets and rounds played are up. Golf ball sales are also stimulated by product introductions
as the retail channel takes on initial supplies. Like golf clubs, re-orders of golf balls depend on the rate of sell-
through. The Company's sales during the fourth quarter are generally signiÑcantly less than the other quarters
because in general in many of the Company's principal markets less people are playing golf during that time of
year due to cold weather. Furthermore, it previously was the Company's practice to announce its new product
line at the beginning of each calendar year. In recent years, the Company has departed from that practice and
now generally 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 additional golf equipment until the Company's new products are available. Such deferments could
have a material adverse eÅect upon sales of the Company's current products and/or result in close-out sales at
reduced prices.
Because of these seasonal trends, the Company's business can be signiÑcantly adversely aÅected by
unusual or severe weather conditions. Unfavorable weather conditions generally result in less golf rounds
played, which generally results in less demand for golf clubs and golf balls. Furthermore, catastrophic storms,
such as the hurricanes in Florida and along the east coast in late 2004, can negatively aÅect golf rounds played
not only during the storms but also for a signiÑcant period of time afterward as storm damaged golf courses are
repaired and golfers focus on repairing the damage to their homes, businesses and communities. Consequently,
sustained adverse weather conditions, especially during the warm weather months, could materially aÅect the
Company's sales.
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