Callaway 2006 Annual Report Download - page 25

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in the marketplace. However, in the future, the Company may not be successful in designing and manufacturing
golf clubs, golf balls or other products that achieve or maintain market acceptance or consumers may be
unwilling to pay premium prices for golf equipment. As a result, the Company may be unable to grow sales or
maintain historical levels of sales due to insufficient demand for the Company’s products.
If the Company is unable to successfully introduce new products, its sales and profits would be adversely
affected.
The Company believes that its future success depends, in part, on its ability to introduce new, innovative
golf clubs and golf balls. A substantial portion of the Company’s revenues is generated by products that are less
than two years old. This strategy poses significant risks. For example, in the golf industry, new models and basic
design changes in golf equipment are frequently rejected by consumers. In addition, prior successful designs
have been 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 sales unless unit sales increase. The rapid introduction of new golf club or golf ball products by the
Company has resulted in closeouts of existing inventories at both the wholesale and retail levels. Such closeouts
have resulted 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’s products generally have relatively short product life cycles and the Company’s operating
results may fluctuate based on the mix of products sold.
The Company’s newly introduced golf club products generally, but not always, have a product life cycle of
two years or less. These products generally sell significantly better in the first year after introduction as compared
to the second year. In some markets, such as Japan, the decline in sales occurs sooner in the product cycle and is
more significant. The Company’s fusion woods generally sell at higher price points than its titanium metal
woods, and its titanium metal woods generally sell at higher price points than its steel metal woods. Historically,
the Company’s woods products generally have achieved better gross margins than its other products. However,
price compression in the woods market has made this differential less, and at times gross margins on woods may
be less than other products. The Company’s sales and gross margins for a particular period may be negatively or
positively affected by the mix of new products sold in such period.
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 sales from the sale of golf related products, including golf
clubs, golf balls and golf accessories. The demand for golf products, generally, 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. If golf participation or the number of rounds of golf played decreases, 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 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 balls, or the market for golf clubs or balls must grow. The
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